Schoeps et al v. Bayern

Filing 54

OPINION AND ORDER re: 17 MOTION to Dismiss for Lack of Jurisdiction. filed by Free State of Bavaria, Freistaat Bayern. For the foregoing reasons shown herein, this lawsuit is hereby dismissed for lack of jurisdiction. The Clerk of the Court is directed to enter judgment and to close this case. SO ORDERED. (Signed by Judge Jed S. Rakoff on 6/27/2014) (kgo)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

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JULIUS H. SCHOEPS, BRITT-MARIE
ENHOERNING, and FLORENCE VON

13 Civ. 2048

(JSR)

KESSELSTATT,
OPINION AND ORDER
Plaintiffs,

-vFREISTAAT BAYERN, or FREE STATE OF
BAVARIA, A STATE OF THE FEDERAL
REPUBLIC OF GERMANY,
Defendant,

·.';,

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JED S. RAKOFF, U.S.D.J.
On March 27, 2013, plaintiffs Julius H. Schoeps, Britt-Marie
Enhoerning, and Florence Von Kesselstatt, heirs of the late Jewish
banker Paul von Mendelssohn-Bartholdy, commenced this action against
the German State of Bavaria to recover a painting by the legendary
artist Pablo Picasso entitled Madame Soler. Previously owned by
Mendelssohn-Bartholdy, Madame Soler was the subject in 1934 Berlin
of an alleged forced transfer under the then-Nazi regime, and after
another change in custody, now resides in a Munich museum under the
custody of Bavaria. Second Amended Complaint ("Am. Compl.")

~~

1-2. 1

Following commencement of this action, defendant Bavaria
brought a motion pursuant to the Federal Rules of Civil Procedure
12(b) (1) to dismiss this action for lack of subject matter

1

On October 17, 2011, the Bavarian State Painting Collection
"reject[ed] the demand for restitution made by the heirs to
Mendelsoohn-Bartholdy." Plaintiff's hearing exhibit ("Pl. Ex.")
1

98.

jurisdiction under the Foreign Sovereign Immunities Act, 28 U.S.C. §
1605 (a) (2)

( "FSIA"). The FSIA "provides the sole basis for obtaining

jurisdiction over a foreign state in the courts of this country."
Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443
(1989). Section 1605(a) (2) of the FSIA provides for jurisdiction
over a foreign state in three instances:

(1) where a plaintiff's

claim is "based upon" "a commercial activity carried on in the
United States by the foreign state";

(2) where a plaintiff's claim

is "based upon" "an act performed in the United States in connection
with a commercial activity of the foreign state elsewhere"; or (3)
where "an act outside the territory of the United States in
connection with a commercial activity of the foreign state elsewhere
causes a direct effect in the United States." 28 U.S.C.

§

1605 (a) (2).
After initial briefing and oral argument on December 23,

2014,

the Court determined that an evidentiary hearing was required. That
hearing was held on two dates, February 28, 2014 and March 18, 2014,
after which the Court received post-hearing supplemental briefing.
In what follows below, the Court has made factual findings where the
evidentiary hearing gave it a basis for so doing, and has otherwise
taken the facts most favorably to the plaintiffs.
According to the Amended Complaint ("Am. Compl."), in 1934 the
late Jewish banker, Mendelssohn-Bartholdy, after nearly two years of
"intensifying Nazi persecution had devastated him financially,
professionally, and socially," consigned Madame Soler to the Berlin
2

art dealer Justin K. Thannhauser, in what was allegedly a
"paradigmatic forced transfer." Am. Compl. ~~ 1-2. Thirty years
later, Madame Soler remained in the custody of Thannhauser, who had
by then relocated to New York. See, e.g., Am. Compl. ~ 4.
In October of 1963, Kurt Martin, the then-Director General of
the State Paintings Collections Munich ("State Paintings
Collection"), an organization operating under the auspices of the
Bavarian State Ministry for Education and Cultural Affairs, see Pl.
Ex. 47., sent a letter to the Bavarian State Ministry for Education
and Culture, seeking approval for a trip to the United States by
Halldor Soehner, a Senior Curator in the department of "17th and
18th Century Spanish and French Paintings," see Pl. Ex. 33. The
purpose of the trip, according to the letter, was so that Soehner,
who was likely the heir apparent to Martin, could become "familiar
with the most modern methods of museum organization .

the

systemization of scholarly and public education work, the
administration of museums, the security measures, the purchase and
so forth [of artworks]

" Pl. Ex. 40 (alteration in the

original). On January 10, 1964, Martin's permission for Soehner's
requested trip "to study museums in the USA" was granted by the
Bavarian State Ministry for Education and Cultural Affairs, with the
caveat that "[a] leave of absence beyond 3 months is not possible in
light of the imminent change in the leadership of the State
Paintings Collections." Pl. Ex. 41. On March 30, 1964, Soehner, as

3

Senior Curator, and soon to be Director General of the State
Paintings Collections, departed for the United States. Pl. Ex. 43.
The evidence shows that at some point after March but before
the end of May 1964, Soehner signed Thannhauser's guestbook in
Thannhauser's residence on the Upper East Side of New York, where
the two men met and, most likely, Soehner saw Madame Soler. Pl. Ex.
44. After returning back to Germany on June 12, 1964, Pl. Ex. 46,
Soehner wrote a letter to Thannhauser on July 1, 1964, in which
following some fulsome flattery, he states: "[t]oday I entered upon
my new position [as Director General], and my first action is this
letter to you," and "I would be particularly grateful if you would
give me the opportunity to visit you around the first of August."
Id. While this might have suggested a second trip to New York,

actually Soehner was planning to meet Thannhauser in Europe. Thus,
on July 22, 1964, Soehner, wrote to the Bavarian State Ministry for
Education and Cultural Affairs, declaring that "it has become a
matter of urgency for me to take an official trip to St. Jean, Cap
Ferrat, France, where important negotiations with the art trade
there concerning future purchases for the Bavarian State Paintings
Collections are to be conducted." Pl. Ex. 49. On July 23, 1964, in
anticipation of such approval, Soehner wrote to Thannhauser stating
"[o]ur original plan to meet at the beginning of the month of August
can now be realized." Pl. Ex. 50. On July 29, 1964, the Bavarian
Ministry officially approved Soehner's trip to France, granting
"approval for the official trip of the Director General of the State
4

Paintings Collections Dr. Halldor Boehner to St. Jean, Cap Ferrat,
France to conduct negotiations with the art trade there in the first
week of the month of August 1964." Defendant's hearing exhibit
("Def. Ex.") 31.
This phase of the correspondence culminates with a Letter
Agreement between Thannhauser and Soehner on August 3, 1964 in
"Saint-Jean-Cap-Ferrat," in which Thannhauser dictates, on "Hotel
Intercontinental Geneve" letterhead,

"I hereby confirm the purchase

of the oil painting 'Madame Soler' by Pablo Picasso by the Bavarian
State Paintings Collections, Munich, from myself as commission
agent. The Purchase price is 1,775,000.00 Swiss Francs .

the

full amount should be paid by August 31, 1965." Def. Ex. 32. The
Letter Agreement adds the caveat that "[t]his acquisition is subject
to the proviso of consent of the Bavarian State Ministry of
Education and Cultural Affairs and the consent of the Purchase
Commission for Modern Art with the Bavarian State Paintings
Collections in Munich." Id.
Given this factual record, plaintiffs now concede that their
original theory that jurisdiction in this Court could be premised on
Soehner and Thannhauser reaching a binding agreement regarding the
sale of Madame Soler in their Spring 1964 meeting in New York can no
longer prevail. March 18, 2014 Transcript ("Tr.") at 370:18-23.
Indeed, the Court finds that Soehner and Thannhauser did not reach
any kind of agreement during the Spring 1964 visit in New York. The
Court further determines that Soehner took no concrete action toward
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-------···-·----------------------

the purchase of Madame Soler until after he returned to Germany and
took office as Director General in July of 1964.
The Court infers that one reason the Letter Agreement was
signed in Europe was Thannhauser's desire to avoid U.S. taxes on the
sale. Thus it appears that before final approval of the sale was
given by the Bavarian Ministry of Education and Cultural Affairs."
Thannhauser - in response to Soehner's request on October 8, 1964
that Thannhauser send a letter to the Bavarian Ministry of Education
and Cultural Affairs "communicating willing[ness]

to sell" Madame

Soler "from your collection to the museums in Munich," id. - stated
that "[t]he paintings are located in Switzerland" and "will be sent
to you from there, upon advanced payment of the expenses." Def. Ex.
36.
Further evidence of Thannhauser's tax avoidance motive came on
October 23, 1964, when the Picasso painting was sent by the entity
"EBA, Vaduz," a Liechtenstein entity controlled by Thannhauser, Pl.
Ex. 26, to the Bavarian State Paintings Collections in Munich, Def.
Ex. 38, with a letter from EBA informing Soehner of the shipment and
asking for confirmation of receipt, Pl. Ex. 58. Final approval of
the sale by the Bavarian State Ministry of Culture and Education did
not, however, occur until December 1964. Def. Ex. 53, 50.
Thereafter, on April 10, 1965, Soehner wrote to Thannhauser that
payment would be made to EBA "as requested," Def. Ex. 59, and on
June 1, 1965, it was "EBA" that wrote to Soehner acknowledging
receipt of payment for Madame Soler. Def. Ex. 62.
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Based on these findings,

the Court concludes that jurisdiction

over the State of Bavaria does not lie in this action under any of
the three exceptions enumerated in the FSIA

§

1605(a) (2). The Court

considers each of these exceptions in turn:
Under the first prong of FSIA
must be "[l]

'based upon'

[2]

§

1605 (a) (2), plaintiffs' suit

some 'commercial activity' by

[Bavaria] that had 'substantial contact' with the United States."
Saudi Arabia v. Nelson,

507 U.S. 349, 356 (1993). In no real sense

is this suit even "based upon" Bavaria's acquisition of Madame Soler
in 1964-65, let alone activity in the United States. Rather, as the
"Nature of Action" section of the Amended Complaint makes clear, the
gravamen of this action is that title to Madame Soler never
rightfully passed to Thannhauser in Germany because "MendelssohnBartholdy consigned the Painting (to Thannhauser)

in 1934 only after

nearly two years of intensifying Nazi persecution," Am. Compl.
See also Am. Compl.

~~

~

2.

70-176. Thus, if this action were to ever

reach the merits, the focus of the case would be almost exclusively
on the circumstances of Mendelssohn-Bartholdy's original sale to
Thannhauser in Europe in the 1930's.
To be sure, Bavaria would not be the defendant in the case but
for the fact that Bavaria purchased the painting from Thannhauser in
1964. But such "but for" reasoning is insufficient to satisfy the
"based upon" requirement. Transatlantic Shiffahrtskontor GmbH v.
Shanghai Foreign Trade Corp., 204 F.3d 384, 390
Rather,

(2d Cir. 2000).

"'based upon' requires a degree of closeness between the
7

acts giving rise to the cause of action and those needed to
establish jurisdiction that is considerably greater than common law
causation requirements." Id.

(citing Saudi Arabia v. Nelson,

507

U.S. 349, 357-58 (1993)); see also Kensington Int'l Ltd. v. Itoua,
505 F.3d 147, 156 (2007). The blot on Bavaria's title to Madame
Soler,

if there is one, is entirely based on what occurred in

Germany in 1934.
Plaintiffs respond by contending that in allegedly "obtaining
in [New York] a legally binding of fer" to sell Madame Soler to
Bavaria, Bavaria committed an integral element of conversion under
New York law. Plaintiffs' post-hearing brief at 7 (emphasis
omitted). See also Meese v. Miller,
(4th Dep't 1981)

79 A.D. 2d 237, 436 N.Y.S.2d 496

("Conversion is any unauthorized exercise of

dominion of control over property by one who is not the owner of the
property which interferes with and is in defiance of a superior
possessory right."). Plaintiffs further contend that commercial
activity that establishes even one part of a single element of a
claim is sufficient to satisfy the "based upon" requirement of FSIA
§

1605 (a) (2).
But even assuming arguendo that any of these dubious legal

contentions is correct, the argument is factually flawed. For as the
Court has already found,

there was no legally binding of fer to

purchase Madame Soler made at any time in New York. Indeed,

there

was nothing more than an initial meeting between Thannhauser and
Soehner at which, at most, there was simply an agreement to talk
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further. Moreover, even if there had been more, Soehner was not yet
Director General at the time he visited Thannhauser in New York, and
he lacked even apparent authority to make any binding offer.
For similar reasons, even if, contrary to fact, plaintiffs
could satisfy the "based upon" requirement of the first exception
under§ 1605(a) (2), they would still fail to satisfy the further
requirement that the events detailed above qualify as "commercial
activity carried on by [Bavaria] having substantial contact with the
United States." The "substantial contact" inquiry focuses on what
Bavaria did in the United States. See, e.g., Santos v. Compagnie
Nationale Air France, 934 F.2d 890, 893 n.3

(7th Cir. 1991). Thus

the fact that Thannhauser was a United States resident is wholly
irrelevant to the Court's sovereign immunity determination under the
first prong of § 1605(a) (2). As has already been made clear, the
evidence establishes that the only activity conducted by Bavaria in
the United States in connection with its acquisition of Madame Soler
consisted of Soehner's preliminary meeting with Thannhauser in the
spring of 1964, a meeting of no legal consequence, which took place
months before the occurrence of all the pertinent events - the
drafting a letter agreement in France, the shipment of the painting
from Vaduz to Munich,

the approval of the acquisition in Munich, and

the payment for the painting to EBA in Liechtenstein - all of which
occurred in Europe. And even if, contrary to the evidence, a bargain
for Madame Soler had been vetted at the initial New York meeting, an
individual preliminary meeting cannot and does not by itself
9

constitute commercial activity "having substantial conduct with the
United States" under FSIA

§§

1605(a) (2) and 1603(e). See,

e.g., Gen.

Elec. Capital Corp. v. Grossman, 991 F.2d 1376, 1383-84 (8th Cir.
1993)

(finding that a single preliminary meeting in Minnesota in

connection with a corporate acquisition in Canada, even when coupled
with subsequent exchanges of letters, faxes, and telephone calls in
the United States, did not satisfy the requirements of the FSIA).
To support jurisdiction under the second prong of FSIA
1605 (a) (2), plaintiffs' case must be "[1] based .

§

upon [2] an

act performed in the United States in connection with a commercial
activity of [Bavaria] elsewhere." Kensington,

505 F.3d at 157. This

prong "is generally understood to apply to non-commercial acts in
the United States that relate to commercial acts abroad." Id.
(internal quotation and citation omitted) . Where, as here, the
plaintiff "has not argued that any non-commercial acts performed by
[Bavaria]

in the United States allegedly formed the basis of its

complaint," the second prong is simply "inapplicable." Id.

(emphasis

in original) .
Finally, the Court does not have jurisdiction over Bavaria
under the third prong of FSIA § 1065(a) (2). This third prong
"contains two requirements:

(1) there must be an act outside the

United States in connection with a commercial activity of [Bavaria]
that cause[d] a direct effect in the United States and (2)
[plaintiffs'] suit must be based upon that act." Transatlantic,
F.3d at 388

(2d Cir. 2000). In a vain attempt to satisfy this
10

204

requirement, plaintiffs posit that Bavaria's purchase of Madame
Soler even if occurring (as this Court has found)

entirely outside

the United States, had a supposed series of allegedly "direct
effects" on the United States, ranging from "the disastrous effect
of Bavaria's commercial misconduct on the policy-sensitive NY art
market," to the furtherance of an alleged criminal conspiracy to
evade United States taxes. See Plaintiffs' post-hearing briefing at
9. This is balderdash. While the Second Circuit has held that
"[t]here is no requirement that the [direct] effect be substantial,"
Servaas,

Inc. v. Republic of Iraq,

2011 WL 454501 at *2

(2d Cir.

2011), neither the alleged impact on the art market nor the alleged
tax evasion are direct effects at all. And the other "direct"
effects alleged by plaintiffs, such as the alleged act of conversion
or the sale of New York property, have already been found by this
Court to be factually unsupported.
For the foregoing reasons, this lawsuit is hereby dismissed for
lack of jurisdiction. The Clerk of the Court is directed to enter
judgment and to close this case.
SO ORDERED.
Dated:

~~-J.

New York, NY
June 27, 2014

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