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December 22nd, 2016
New Federal Law Will Govern Timeliness of Nazi-Looted Art Claims
On December 16, 2016, President Obama signed into law the Holocaust Expropriated Art Recovery (HEAR) Act of 2016. This statute establishes a uniform, federal statute of limitations for claims seeking the recovery of artwork and certain other objects that were confiscated by the Nazis. Now, such claims may be brought within six years of the claimant's discovery of facts giving rise to the claim (including the whereabouts of the object). Previously, the timeliness of such claims was governed by generally more restrictive state laws, which varied state to state, leading to costly choice-of-law battles, unpredictability, and rulings barring meritorious claims. The new law, which represents a major change in the law governing the statute of limitations for Nazi looted art claims, is expected to alleviate these concerns in ongoing and future disputes. Here's what you need to know.
Background and Prior Law
Actions to recover works confiscated by the Nazis have faced substantial legal challenges over the years due to the passage of time between the alleged misappropriation and the initiation of the claim. Before the HEAR Act, some states held that the applicable statute of limitations (such as three years) ran from the date the claimant either lost the work or, alternatively, the date he or she reasonably should have discovered facts giving rise to the claim. By contrast, New York law applied a "demand and refusal" rule, under which the three-year statute of limitations for claims seeking the return of looted art did not begin to run until the claimant made a demand to the defendant for return of the object, which was refused. To counterbalance this seemingly generous limitations period, New York law gave defendants a laches defense (an equitable doctrine that prohibits a plaintiff from unfairly sitting on his or her rights), which presented formidable hurdles to plaintiffs' claims under New York law.
The HEAR Act
The HEAR Act supplants this patchwork of laws with a uniform federal law. In a nutshell, the law:
- Sets a six-year statute of limitations running from actual discovery. The HEAR Act provides that any claim to recover artwork that was lost as a result of Nazi persecution must be commenced within six years of actual discovery by the plaintiff (or plaintiff's agent) of: (i) the identity and location of the property and (ii) a possessory interest of the plaintiff in the work.
- Applies to pending and future claims filed through 2026. This six-year statute of limitations applies to claims that are pending, including on appeal, and claims filed from the date of enactment through December 31, 2026.
- Provides that known claims accrue upon implementation of the Act. In the event that a claimant had knowledge of (i) the identity and location of the property and (ii) a possessory interest in the work before the date of enactment of the Act, the Act deems the claim to have been actually discovered (and thus the six-year statute begins to run) on the date of enactment of the Act, regardless of whether the cause of action was deemed time barred under previously applicable law. Excepted from this rule is any claim that was actually discovered on or after January 1, 1999 that would have been timely under previously applicable law, but nonetheless was not asserted for a period of at least six years.
- Covers a broad variety of objects. In addition to works of visual art, the Act governs books, archives, musical objects and manuscripts, sound, photographic, and cinematographic archives and media, and sacred and ceremonial objects and Judaica.
- Includes a sunset provision. The HEAR Act will expire on January 1, 2027, except that it will continue to apply to any case pending on that date. Any claims filed on or after January 1, 2027 will be subject to the various laws covering the passage of time that are then in effect.
The Take Away
The HEAR Act is intended to focus adjudication of Holocaust recovery claims on the merits. By setting a uniform statute of limitations, both plaintiffs and defendants can avoid costly choice-of-law battles on statute of limitations issues. Time will tell whether this law will cause a rise in Holocaust recovery claims that were known but unasserted in New York, or that might have been otherwise time barred elsewhere but now are revived under the new law.
If you have any questions about the HEAR Act or other art-related legal issues, please contact Amelia Brankov at (212) 826 5574 or firstname.lastname@example.org, Lily Landsman-Roos at (212) 705 4894 or email@example.com or any other member of the Frankfurt Kurnit Art Law Group.
Other Art Law Alerts
Recent NYS Sales Tax Law Change Affects Art Sales Between Related Entities
On August 14, 2017, the New York State Department of Taxation & Finance issued a Technical Memorandum, TSB-M-17(4)S, which will be of interest to many New York-area art dealers and collectors.
August 23 2017
Appraisal Relied on by Estate Undervalued Paintings by $1.77 Million
Recently, in Estate of Kollsman v. Commissioner the U.S. Tax Court held that an art collector's estate significantly underreported the value of two artworks for estate tax purposes. The problem: the estate relied on appraisals by an auction house specialist who had an incentive to "lowball" the appraisals to win the right to later auction the works. In addition to this conflict of interest, the court found that the values reported by the estate were unpersuasive because the auction house specialist exaggerated the dirtiness of the paintings and failed to adjust his appraisals after one of the works sold at auction for approximately five times more than the reported value. Here's what you need to know about the case.
April 4 2017
Court Holds Art Advisor Must Pay Collector $1.05MM for Fraud
A New York court has ruled that an art advisor who brokered the sale of a collector's painting and secretly pocketed $1 million will have to pay the money back. Because the dispute turned on the advisor's agreement with the collector and what kind of legal duty the advisor owed to the collector, the case offers valuable lessons for people structuring art transactions. Here's what you need to know.
March 21 2017