Since 2006, “Adele Bloch-Bauer I” (also known as “The Lady in Gold” and “Adele I”) by Gustav Klimt has been on exhibit at the Neue Galerie in New York City, after having been purchased by Ronald S. Lauder for $135 million. The painting is an oil on canvas with gold and silver and is 54 inches by 54 inches. It arrived at the gallery after an arbitration decision in Austria to return the painting to Maria Altmann, the niece of Adele and the sole surviving direct heir of Adele and Ferdinand Bloch-Bauer. The history of the painting spans over 100 years of social, political and legal intrigue, revealing the tragic consequences of the 1938 Nazi Anschluss into Austria, the confiscation of property and artwork of the Jewish population and over 50 years of deceit by the Austrian government to hide the true nature of the ownership.
Origins of Painting
Adele Bauer was born in Vienna in 1881; she was the youngest daughter of seven children. Her father was a director of a bank association and the president of the Orient Railway Company. In 1899, she married Ferdinand, who was much older by 17 years. Afterward, her sister Therese married Ferdinand’s brother Dr. Gustav Bloch. Some time later, the couples combined family names to “Bloch-Bauer.” Ferdinand, a Czech, owned a manor in Prague in addition to his large home in Vienna, along with a sugar refinery outside of Vienna.
The Bloch-Bauer Vienna residence served as the headquarters of the sugar refinery, as home to the extended family and as the center of a “salon” hosted by Adele; it bustled with artists, actors, musicians, writers and Vienna’s social elite. Adele was self educated in languages, the arts and literature, and it’s here where Adele and Klimt met; some have said the relationship went beyond portraiture and the painting of “Adele I” and “Adele II” and that Adele herself was the inspiration for Klimt’s well-known painting, “The Kiss.” “The Kiss” still hangs in Vienna’s Belvedere Museum, and the museum remains the largest holder of Klimts despite the loss of several paintings to Maria and the four children of her brother and sister.
Around 1903, Ferdinand commissioned “Adele I,” which was completed in 1907. With the fall of the Austrian-Hungarian Empire in 1918 after World War I, the Bloch-Bauers obtained Czech citizenship but remained in Vienna. In 1925, Adele died of meningitis; her will left her estate to her husband but included a “request” or “wish” that on her husband’s death, “Adele I” and another painting, “Adele II,” as well as other Klimt works, be donated to the Belvedere Museum. In 1937, the Nazis entered Austria during the Anschluss. Under the guise of tax evasion, the Bloch-Bauer estate was confiscated, including the Klimts, a large porcelain collection and other antiques. Ferdinand fled to Switzerland, where he died in 1945.
Maria faced her own treachery by the Nazis when her husband Fritz Altmann, an opera singer, was arrested and sent to the Dachau concentration camp. The necklace portrayed in “Adele I,” given to her as a wedding present by her uncle, and her engagement ring and other jewelry, were taken from her. The necklace, which had belonged to Adele, was presented by General Hermann Goering as a present to his wife. In exchange for the release of Fritz, Maria’s brother-in-law Bernhard Altmann was required to turn over his successful cashmere sweater factory to the Nazis.
The family escaped to England but was forced to leave when the British entered World War II. They arrived in the United States and first lived in Fall River, Mass., where Bernhard opened a sweater factory. The Altmanns moved to Beverly Hills, Calif., and Maria sold her brother-in-law’s sweaters at a fashionable boutique. After running factories in Austria, England and Massachusetts, Bernhard finally located to Texas, where he became the largest U.S. importer and distributor of cashmere.
The Lady in Gold
Meanwhile, Klimt’s notoriety was growing in Europe, the United States and around the world. Because of the avant-garde nature of his works, Klimt posters, including “Adele I” and “The Kiss,” became very popular during the 1960s in American college dormitories. The case itself has been the subject of a book, numerous articles, three documentaries and a recent Hollywood movie, “Woman in Gold.”
The Bloch-Bauers owned seven Klimt paintings, five of which were finally returned in the arbitration: “Buchenwald,” 1903; “Adele I,” 1907; “Schloss Kammer am Atterse III,” 1910; “Adele II,” 1912; “Apfelbaum I,” 1912; “Hauser in Unterach am Atterse,” 1916; and “Amalie Zuckerkandl,” 1918. “Amalie Zuckerkandl” wasn’t returned, as it was found to have been sold back to a family friend from whom it had been purchased; ultimately, it was donated to the Belvedere by the final owner. In 1936, Ferdinand donated “Schloss Kammer” to the museum.
The administrator of the confiscated estate was a lawyer named Dr. Erich Führer. He gave “Adele I” and “Apfelbaum I” to the Austrian National Gallery, Belvedere, in return for “Schloss Kammer,” which he sold to one of Klimt’s sons. He sold “Buchenwald” and “Adele II” to the gallery and kept “Hauser” for himself. When Ferdinand died in 1945, he left his estate to his nieces and nephew, the children of Adele’s sister Therese: Robert, Louise and Maria. Robert had moved to Canada and changed his last name to Bentley. Louise died in 1998, a few years before the U.S. litigation was initiated; however, she and her brother had collected and kept numerous letters and documents gathered over the previous 50 years, particularly up to 1958 when various lawyers were corresponding with the administrator of Ferdinand’s will, the probate estate and his heirs. Maria gained possession of the collection of documents.
Restitution
After WW II, the Austrian government adopted the Annulment Act, which voided Nazi transactions during 1938 to 1945. Under the Act, from 1948 to 1949, Jews who wanted export permits for claimed property were required to donate other valuable artworks deemed to be important in the name of preserving national heritage. A family lawyer, Dr. Gustav Rinesh, without the consent of the heirs, agreed to the donation. Robert obtained a few artworks of little value and a modest number of porcelain pieces.
By 1998, a confluence of events brought the issue of confiscated property by the Nazis to the forefront. First, the Estate of Lea Bondi sued in New York and was successful in obtaining the return of “Portrait of Wally” by Egon Schiele. Second, there was an international conference in Washington, D.C. on confiscated property during WW II. Finally, Hubertus Czernin, an Austrian journalist, began publishing articles about some of his investigations of stolen art and property. In response, Austria enacted the Restitution Act to provide an administrative process whereby restitution claims could be made for works donated under the Annulment Act to gain export permits for lesser valuable items.
Maria made claims under the Annulment Act, and they were rejected by the Restitution Committee in 1999, in part relying on the provision in Adele’s will. Maria challenged the rejection of her claim in Austrian courts but withdrew it because the filing fee was prohibitive; Austrian law required that 1.2 percent of the value be filed as a fee, which totaled about $1.6 million. It was reduced to $300,000 but was still too much for Maria.
Finally in 2000, E. Randal Schoenberg, of Burris & Schoenberg LLP in Los Angeles (who was played by Ryan Reynolds in the film), filed an historic case in U.S. Federal District Court for the Central District of California for his client Maria (played by Helen Mirren in the film). Austria and its agent, the Belvedere, objected to the lawsuit based on lack of subject matter jurisdiction, lack of venue, failure to join necessary parties and forum non conveniens (FNC).
The Federal District Court and the U.S. Court of Appeals for the Ninth Circuit denied the objection. The case came to the U.S. Supreme Court on the defendant’s denial of a motion to dismiss on the pleadings and as such, the facts in the pleadings were presumed to be true as the Supreme Court justices analyzed the case.1
Supreme Court Opinion
The focus of the ruling was primarily related to Section 1330(a) of the Foreign Sovereign Immunities Act of 1976 (FSIA)2 and to what extent a foreign state is entitled to immunity under FSIA or any applicable international agreement. Specifically at issue was the “expropriation exception” under FSIA, which applied to confiscated property.
Maria sought a declaration that the Klimt paintings should be returned in accordance with the 1998 Austrian law. Her other claims were for replevin (or return) under California law and rescission of any agreements with the Austrian government due to mistake, duress and/or lack of authority from the heirs. She had claims for damages related to expropriation and conversion; violation of international law; the imposition of a constructive trust; restitution for unjust enrichment; and the disgorgement of profits under the California Unfair Business Practices Act.
The majority decision focused on the “expropriation exception” of FSIA and noted that Section 1605(a)(3) expressly exempted from immunity all cases involving “rights in property taken in violation of international law,” provided the property is engaged in commercial activity in the United States or the agency or instrumentality that owns the property is engaged in commercial activity. By this time, the Belvedere had sold posters, books and novelty items with “Adele I’s” image for 30 years in the United States.
The majority concurred with the district court, rejecting the argument that the actions of Austria and the Belvedere took place in 1948, that Austria at that time would have enjoyed absolute immunity from suit in the United States and that nothing in FSIA should create retroactive application. The court stated that foreign sovereign immunity was a “matter of grace and comity” rather than a prescribed constitutional requirement:
‘We think that the text and structure of the FSIA demonstrate Congress’ intention that the FSIA be the sole basis for obtaining jurisdiction over a foreign state in our courts. Sections 1604 and 1330(a) work in tandem: §1604 bars federal and state courts from exercising jurisdiction when a foreign state is entitled to immunity, and §1330(a) confers jurisdiction on district courts to hear suits brought by United States citizens and by aliens when a foreign state is not entitled to immunity.’3
The majority made clear that subject matter jurisdiction required application of “one of the specified exceptions to foreign sovereign immunity.” To what extent the historical nature of the case impacted the court can’t be determined. That said, it’s interesting that in the first paragraphs of the opinion, the court refers to the original 1941 correspondence by Dr. Führer to the museum and specifically highlights that it ended with, “Heil Hitler.”
Justice Antonin Scalia in a brief concurrence, stated that FSIA affected substantive rights only accidentally and not as a necessary and intended consequence of the law, noting the need for case-specific inquiry as to whether U.S. courts would have asserted jurisdiction at the time of the underlying conduct.
The concurrence by Justice Stephen Breyer, with Justice David Souter, further clarified the discussion above and pointed to the last element of FSIA:
But what about the last element: Is this a ‘case ... in which rights in property taken in violation of international law are in issue’? Altmann claims that Austria’s 1948 actions (falsely asserting ownership of the paintings and extorting acknowledgment in return for export permits) violated either customary international law or a 1907 Hague Convention ... on the Laws and Customs of War on Land, [which states] ‘All seizure of works of art is forbidden and should be made the subject of legal proceedings.’4
The dissent objected to the application of the exception by the majority, as it believed the statute contained no clear statement requiring retroactive effect and argued that the language of the act “was not ambiguous.” They believed the argument by the majority, that FSIA was jurisdictional in nature and not substantive, was a non-sequitur. The dissent didn’t want to depart from a 1952 shift to a more restrictive view of bringing a foreign nation to a U.S. court.
Binding Arbitration
After the Supreme Court made its decision, the parties agreed to a three-person binding arbitration panel in Austria. The process is often elected as an alternative to going to court in other countries and is quite dominant in the European Union. Presumably, Austria felt it would be less costly than litigating in the United States, that Austria would be a more favorable forum and it would provide some control over the negative publicity. Maria may have realized that proof at trial of what would be deemed hearsay was nebulous at best, including the lack of witnesses. Either way, the litigation strategy by Schoenberg was brilliant, as it convinced Austria and the Belvedere to agree to arbitration. The process itself allowed Maria to file an over 100-page memorandum that not only summarized the facts and legal claims, but also included the documents collected by the family. Written in English with German document inserts, the contents of the memorandum were overwhelming and didn’t need to meet the federal rules of evidence in a trial proceeding.
The Proper Forum
Of significant legal interest is that the case was ultimately heard and decided in the proper jurisdiction. While the Supreme Court granted jurisdiction and rejected the argument of FNC, such wouldn’t be the case under most FNC legal analyses. Many factors were required for the court to assert jurisdiction in a very narrow application of FSIA, and there was certainly no guarantee of success on remand to the federal district court for Maria.
FNC is a common law doctrine that permits a court to decline to exercise jurisdiction if an alternative forum would be substantially more convenient or appropriate. In the United States, FNC is most commonly used by the defendant as a quasi-defense. Once invoked, the court must balance convenience against the plaintiff’s choice of forum. Generally, if the plaintiff’s choice of forum is reasonable, then the defendant must show a compelling reason to change the jurisdiction. Also, if a transfer to another forum would simply shift the inconvenience to another party, the court shouldn’t allow a dismissal based on FNC. In instances in which a change in forum will significantly change the substantive outcome and application of substantive law, a court has a high burden of judicial review. For example, this issue would occur in a tort matter in which one forum applied strict liability in a tort case and the other forum didn’t.5
Factors considered by a court when determining whether to grant a dismissal on the grounds of FNC include: the location of potential witnesses; the location of relevant evidence and records; possible undue hardship to the defendant; availability of adequate alternative forums; the expeditious use of judicial resources; the choice of law applicable to the dispute; and questions of public policy. In 1948, Congress enacted 28 U.S.C. 1404(a), which codified the FNC doctrine to transfer cases among the various federal courts within the boundaries of the United States.
Under Roman law, FNC was determined by looking at over half a dozen connecting factors:
1. “Lex loci contractus,” the law of the place of the contract.
2. “Lex loci solutionis,” the law of the place where the contract was performed.
3. “Lex loci celebrationis,” the law of the celebration, for instance “marriage.”
4. “Lex loci delicti,” the law where the tort was committed.
5. “Lex loci domicilii,” the law where the person was domiciled.
6. “Lex patriae,” the law of the nationality.
7. “Lex situs,” the law of the place where the property was situated.
8. “Lex fori,” the law of the forum or the place of trial.
In private international law, courts deal with the concept of FNC by applying principles under two approaches. The first is the “center of gravity” approach. This is an objective standard that maintains that the forum, the law or both should be applied based on the state with the most significant contacts. The second approach is based on an “interest analyses.” This approach is more subjective than objective as the focus is on “compelling interest.” Such a standard is often criticized as it doesn’t constrain judges who are free to interpret whether a local interest rises to the level of a true conflict. Clearly in the Altmann case, the application of the exception of the sovereign immunity under FSIA brought the court to the latter approach, while the dissent harkened to the former.
In the United States, two other approaches further complicate the application of FNC principles. First, under the Restatement (Second) of Conflict of Laws, the court is to apply “statutory requirements” and a “significant relationship” test, including the needs of the interstate and international systems of government and relations. Another approach is the “act of state” doctrine, in which the courts of one country won’t sit in judgment of the acts of another done within its own territory. Here, the majority in Altmann, without saying so, applied the FNC statute and referred to an international treaty to avoid the “act of state” rule.6
Not dealt with at any stage of the U.S. federal district court filing and appeals were two principles one would expect to have at least been mentioned. First, in general, U.S. courts won’t hear matters involving the administration of a decedent’s estate, the so-called “probate exception.”
Second, in international private law, the principle of “renvoi” is applied in wills to determine the validity of a bequest (that is, the asserting jurisdiction might not apply its normal situs rules if it determines that the law of an asset might refer back to the asserting jurisdiction).
Conflict of Laws
When a court refers to an issue of foreign law, it generally looks to the domestic rules of that jurisdiction. At times, a court will treat a reference to foreign law by looking to that foreign jurisdiction’s own rules regarding conflict of laws. A clear example is Ross v. Ross.7 In Ross, the decedent, a British national, died domiciled in Italy; she had movable property in England and movable and immovable property in Italy. Her will provisions were valid in England and were invalid in Italy. She had left none of her real property in Italy to her son, which was an invalid will provision under Italian law. Under British conflict-of-laws rules, a will is to be interpreted based on an individual’s domicile, which was Italy. Yet under Italian law, the conflict-of-laws rules apply the law of an individual’s nationality. As such, the court in the United Kingdom applied domestic law, and the will was held to be valid.
Since 1973, there’s been an international treaty on wills, “The Hague Convention Providing a Uniform Law on the Form of an International Will.” More recently, the European Union adopted “Uniform Rule of Regulation No. 650/2012” (Regulation), which became effective Aug. 17, 2015. The Regulation provides that under EU rules, the country where an individual usually lived (otherwise called “habitual residence” under international treaties) at the time of death will deal with the inheritance proceedings and will apply the law of “that” EU country. However, a citizen of the European Union can elect to apply the law of his nationality, even if it’s not an EU country. Ireland and the United Kingdom don’t participate in the rule.
This brings the discussion back to Adele’s “wish” or “request” that Ferdinand donate the Klimts to the Belvedere. When her will was probated, the record shows all of the property going to Ferdinand. However, he indicated to the court that he would honor Adele’s request. There are, however, several unanswered questions: Was there a completed gift by Ferdinand to Adele? Was her request in the will analogous to a constructive trust? Was Ferdinand bound by his response to the court? Do any conflict-of-laws rules prevent relitigation of the probate proceeding outside of Austria? More importantly, how would a federal district court deal with Austrian probate law to get to a final analysis of the application of the other claims?
On Jan. 15, 2006, the three-panel arbitration issued a 46-page decision. It reviewed the issues described above, which the Supreme Court didn’t address, and awarded “Adele I,” “Adele II,” “Apfelbaum,” “Buchenwald” and “Hauser” to Maria and the children of her brother and sister. “Amalie Zuckerkandl” was found to have been sold back to the original owner:
In legal terms, the submitted facts lead one to conclude that Adele Bloch-Bauer’s will regarding the five or respectively six paintings was merely a non-binding request; furthermore, even if it was construed as a legacy that was intended to be binding, the validity of this request was incompatible with the principle of testamentary freedom, as it was at best a reversionary legacy of an asset that didn’t belong to the testatrix, but rather to the heir (Ferdinand Bloch-Bauer). Furthermore, his declaration made in the Adele Bloch-Bauer probate proceedings, namely that he would faithfully fulfil the request, was neither a constitutive acknowledgment nor a valid promise to donate.8
The panel found that the 1998 Act applied to the actions taken in 1938 by Dr. Führer and in 1948 by Dr. Rinesh and held them to be invalid.9
“Adele I,” considered to be Austria’s “Mona Lisa,” became the most expensive painting ever auctioned by Christie’s up to that time. Today, at $135 million, it remains in the top six of the most expensive paintings ever sold. The total collection sold for $325 million, and Klimt’s works remain in demand; his “Portrait of Gertrud Loew” sold for nearly $40 million in 2015 at Sotheby’s London.
For a gallery of some of the artworks mentioned in this article, see http://bit.ly/20mLEpM.
Endnotes
1. See Republic of Austria v. Altmann, 541 US. 677 (2004).
2. Foreign Sovereign Immunities Act of 1976, 28 U.S.C. Section 1330(a) (FSIA).
3. See supra note 1 (citations omitted).
4. Supra note 1, quoting FSIA.
5. See Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981).
6. See Underhill v. Hernandez, 168 U.S. 250 (1897).
7. Ross v. Ross, 1 Ch. 377 (1930).
8. See Arbitral Case, Altmann et al. v. Austria (Jan. 15, 2006), http://bit.ly/1V4tx6v.
9. Ibid., at pp. 44-46.
