Judge Rakoff Rules Bavaria Has Sovereign Immunity From Suit Seeking Return of Picasso Painting

In an opinion Friday, Judge Rakoff ruled that the German state of Bavaria was entitled to sovereign immunity in a suit seeking return of a Picasso painting called Madame Soler that was allegedly the subject of a forced transfer from Paul von Mendelssohn-Bartholdy to Justin Thannhauser under the then-Nazi regime in Germany  in 1934. Mr. Thannhauser later relocated to New York and then transferred the painting to Bavaria to be displayed in a museum. The plaintiffs sought to invoke an exception to sovereign immunity for commercial activity having a substantial connection to the United States, but Judge Rakoff ruled that the case, at bottom, concerned the events in Germany, not New York:

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 "Mendelssohn-Bartholdy consigned the Painting (to Thannhauser) in 1934 only after nearly two years of intensifying Nazi persecution.” 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.

The plaintiffs also tried to invoke an exception for commercial conduct occurring outside the United States having a “direct effect” on the United States, but Judge Rakoff rejected this argument as “balderdash”:

In a vain attempt to satisfy this 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. 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.