When Is It Too Late To Recover Artwork You Own? Laches: The Stealth Defense

This essay examines the defense of laches in claims to recover works of art and its particular importance in New York, and offers advice both for those attempting to recover art and those defending against claims from the distant past. --- RDS

JUDITH WALLACE is a member of the Art Law Group at Carter Ledyard & Milburn LLP. She represents collectors, foundations, artists and scholars in matters of art ownership, authenticity, authorship, consignment and sales, foundation governance and other art-related matters.

When is it too late to reclaim lost or stolen art? This question may arise when fiduciaries dealing with an estate begin to discover missing artwork stored, loaned, or consigned and never returned, or perhaps in the hands of someone who may have stolen it. Executors may receive unexpected demands to turn over artwork the decedent possessed for decades and that was assumed to be part of the estate.

Most people are aware that statutes of limitations set a deadline to file a lawsuit, but are less familiar with another "deadline." To prevent unfairness resulting from unreasonable delay in asserting legal rights, the equitable defense of "laches," which embodies the ancient principle that equity does not aid those who sleep on their rights, may bar a claim that is not barred by the statute of limitations.1

The Particular Importance of the Laches Defense in New York

Understanding the laches defense is important in New York, because of the state's distinctive rule on the statute of limitations to recover artwork.

The deadline for an original owner (or her successor) to recover artwork possessed by someone else is generally governed by the statute of limitations for conversion. Conversion is any act that excludes the rights of the owner, such as selling or destroying someone else's property. It is a civil wrong that may give rise to a claim for damages. In New York, someone who merely possesses artwork owned by another has not "converted" it until she refuses a demand by the owner for the return of the artwork, because until the possessor has refused a lawful demand, she has done nothing wrong. (There is an exception to this rule if the demand would be futile because the artwork no longer exists or possession already has been transferred to someone else, or if the work was stolen and is in the hands of the thief, who would presumably ignore such a demand.) This definition of conversion is significant because the statute of limitations for a tort does not start to run until the tortious act — i.e., the refusal of the demand — has taken place.

Furthermore, in New York the expiration of the statute of limitations against the possessor of the art does not extinguish the true owner's title to the art. Accordingly, even if the statute of limitations has expired against the thief or converter, and the thief has sold the artwork, the true owner can make a timely claim against the person who possesses it. As a result, under New York's distinctive rule, a demand for the return of artwork that had been stolen or converted decades earlier could be within the statute of limitations. (See the Spring 2012 issue of Spencer's Art Law Journal for a comprehensive discussion of the this rule and the public policy reasons for protecting true owners of lost or stolen art, originally set forth in the landmark 1991 Court of Appeals decision in Solomon R. Guggenheim Foundation v. Lubell.)2 Nevertheless, the doctrine of laches may bar an otherwise timely claim under New York law. In jurisdictions where the statute of limitations runs from the time of the original misappropriation and extinguishes the owner's title, the laches defense is less important and less often raised.3 7154982.1

What is Laches?

The doctrine of laches is intended to prevent unfairness resulting from the assertion of long-delayed claims. The laches defense has two elements: (1) unreasonable delay by the claimant and (2) prejudice to the defendant resulting from that delay.

Courts and claimants struggle with this seemingly straightforward test, especially when its application forecloses the claims of a sympathetic party. Two recent cases involving Holocaust-era claims are particularly helpful in illustrating the challenges in applying the laches defense.

Delay — Whose Delay?

A threshold question is whose delay is relevant in the laches test. This is important in a claim by an estate, when the heirs or executors only recently discovered a claim that the decedent knew about for decades, but for some reason did not pursue. A recent federal court decision by the Second Circuit Court of Appeals in Bakalar v. Vavra makes it clear that descendants are charged with their predecessors' knowledge and delay.4

The Bakalar case involved Holocaust-era issues, although it was not a typical claim for Nazi-looted art. This dispute involved the competing claims of the successors of two groups of family members of Fritz Grunbaum, the original owner of a drawing by Egon Schiele entitled Seated Woman with Bent Left Leg (Torso), and a prominent Austrian Jewish cabaret performer and art collector. Grunbaum died in a concentration camp, as did his wife Elisabeth. Decades later, Milos Vavra and Leon Fischer (remote relatives of the Grunbaums) asserted their claim as heirs to the estate in 1999, and eventually demanded the return of the Schiele drawing from Bakalar, who had filed a federal lawsuit seeking a declaratory judgment that he had good title. Bakalar had purchased the drawing in 1964 from the highly regarded Galerie St. Etienne in New York, and could trace his ownership back to Mathilde Lukacs, Grunbaum's sister-in-law, who sold the drawing to a Swiss gallery in 1956. At the time of his purchase, Bakalar had no knowledge of any question or disputes concerning ownership of the drawing.

After a non-jury trial, the district court, applying New York law,5 held that Bakalar had the burden of proof to demonstrate that Mathilde Lukacs acquired good title to the artwork, and that Bakalar had not met that burden.6 The fact that Lukacs possessed the drawing in 1956 "suffices to establish by a...