U.S. Courts Raise the Bar for American Art Dealers and Collectors
With the proliferation of national cultural patrimony laws, several foreign nations have made many claims to fine art and antiquities in the United States alleged to have originated from their territories. These claims are often coupled with a demand that the object be removed from an auction or exhibition and returned to the country of origin. They are intended to kill the sale of the disputed object and chill the market for other objects. If the owner and seller are not intimidated, the claim can lead to legal action in American courts pitting the owner against the foreign government and its governmental agencies.
The ability of Americans to bring suit against foreign governments in the United States is governed by the Foreign Sovereign Immunities Act (FSIA). However, the FSIA confers upon foreign states (and their agencies and instrumentalities) immunity from suit in the United States, subject only to certain specific exceptions set forth in the FSIA. The scope of those exceptions, particularly the “commercial activity” and the “expropriation,” or “takings,” exception, has been a hotly contested matter that has important implications for the antiquities market and the broader art market as well. These issues reflect the tension between the interests of U.S. litigants and considerations of international comity and deference. Over the past year, federal courts in New York have rendered three decisions that leave no doubt that a U.S. owner of art or antiquities asking a U.S. court for relief against a foreign sovereign that has claimed the owner’s property faces an exceptionally high hurdle in establishing the applicability of an exception under the FSIA and that the foreign sovereign, in claiming immunity under the FSIA, enjoys a correspondingly low threshold.
Barnet v. Ministry of Culture and Sports of the Hellenic Republic. In 2020, the United States Court of Appeals for the Second Circuit upheld Greece’s defense of immunity under the FSIA. In Barnet, the owners consigned an ancient Greek statue to Sotheby’s for auction in New York. The Greek Ministry of Culture sent a letter to Sotheby’s alleging that the object was Greek property and demanding that the statue be withdrawn from auction and returned to Greece. Sotheby’s and the consignor sued Greece in the U.S. District Court for the Southern District of New York, which granted jurisdiction over plaintiffs’ action for declaratory judgment challenging Greece’s title claim. On appeal, the Second Circuit rejected the plaintiffs’ argument that the FSIA’s “commercial activity” exception applied and declined to grant jurisdiction over the plaintiffs’ action. The plaintiffs argued that Greece had failed to allege any facts supporting its claims of actual or constructive theft or challenging the statute’s provenance, which reflected a 1967 auction acquisition. Without examining whether Greece had substantiated its demand, the Court determined that the demand was an act relating to the enforcement of Greece’s national patrimony laws and therefore a sovereign, rather than commercial, activity. We criticized the decision heavily in an earlier article (“Second Circuit Enables Bad Faith Claims” https://pmcounsel.com/barnet-v-ministry-of-culture-and-sports-of-the-hellenic-republic/). We noted that, in denying jurisdiction, the Court effectively elevated Greece’s unsupported allegations to a meritorious claim that deprived the plaintiffs of the means to litigate the merits of Greece’s claim in an American court. In effect, the Court held that Greece’s demand had been made to enforce its cultural heritage laws, notwithstanding that Greece, by moving to dismiss jurisdiction, refused its opportunity to prove title, and thereby legally enforce its claim, in an American court. The result is that even though Greece declined to prove title or obtain possession of the statue, the statue was “burned” and rendered unmarketable and the market for Greek antiquities was chilled. Although Greece considers the case a win, it seems unlikely that Congress contemplated this result when it crafted the “commercial activity” exception.
Aboutaam v. L’Office Federale de la Confederation Suisse et al. and Beierwaltes v. L’Office Federale de la Confederation Suisse et al. In June 2021, the Second Circuit rendered a decision in two related appeals we argued in October 2020, affirming the dismissal of the plaintiffs’ claims against various Swiss government authorities on immunity grounds. Those actions involved the seizure in 2017 of some 12,000 antiquities in Switzerland owned by Phoenix Ancient Art S.A., a Swiss antiquities gallery, and its principals, one of whom is Ali Aboutaam. The seizure also happened to sweep up some 1,200 objects that Hicham Aboutaam, an American citizen residing in New York, inherited from his father in Switzerland and stored with Phoenix, as well as eighteen antiquities that William and Lynda Beierwaltes, a Colorado couple, consigned to Phoenix by order of the U.S. bankruptcy court in Colorado, worth, all told, almost $100 million. The warrant on which the seizure was based made no mention of Hicham Aboutaam or the Beierwaltes’ or any of their property and was issued without probable cause with respect to the plaintiffs’ items. Nonetheless, the seizure led to an ongoing investigation in Geneva of an indefinite duration of all seized items which deprived the plaintiffs of their property rights since 2017 and appeared to have devolved into a search for some retroactive justification for the seizure. Notwithstanding the absence of any stated basis in law or fact to suspect criminal activity on the part of the plaintiffs or their property, the Second Circuit rejected the plaintiffs’ contention that the “takings” exception to the FSIA applied and determined that the freezing of the plaintiffs’ assets constituted a “routine law enforcement seizure” that was not a “taking” for purposes of the FSIA exception. The “takings” exception, the Court noted, could apply to a foreign governmental investigation only if it (i) was not “rationally related” to a public purpose; (ii) was a “pretextual attempt” to nationalize property without compensation; or (iii) had continued for an “unreasonable” amount of time (the Court, accordingly, deeming “reasonable” the four-year investigation of the plaintiffs’ antiquities, which was based on an unfounded seizure and continues with no end in sight).
Safani Gallery, Inc. v. Republic of Italy. In August 2021, the United States District Court for the Southern District of New York dismissed the plaintiffs’ action against Italy on immunity grounds, ruling, among other things, that the FSIA’s “takings” exception did not apply. Safani involved a seizure by the Manhattan District Attorney’s Office from a New York gallery of a marble sculpture based on a report by Italy alleging that the object had been stolen from Italy. The plaintiff claimed that the District Attorney, acting at Italy’s direction, had seized the object without any investigation into the merits of Italy’s allegations. The Court, however, found, without analysis of the bona fides of Italy’s allegations or the District Attorney’s investigation, that, because the District Attorney had seized the object pursuant to a warrant, the seizure had been related to a law enforcement investigation for a public purpose and was therefore not a “taking” within the meaning of the FSIA.
For owners of fine art or antiquities seeking to protect or vindicate their property rights against foreign sovereigns and their agencies, these decisions make the FSIA a formidable obstacle. Particularly noteworthy is the deference the U.S. courts accord to unsubstantiated allegations by the foreign states and their governmental subdivisions that lead to seizures of art and antiquities and chilling of the market for the objects in question. The courts afford wide latitude to activities they characterize as related to law enforcement or sovereign interests, effectively shielding them from scrutiny in a litigation and refraining from engaging in critical analyses of the fundamental fairness and propriety of the foreign state’s acts. Although legal challenges to such acts in U.S. courts are feasible in principle, the bar has been set so high that the “commercial activity” and “expropriation” exceptions under the FSIA are, in practice, of little use except, perhaps, in cases presenting the most egregious facts. However, be on the lookout for our next article in which we analyze other recent cases that offer a means of avoiding the outcome under the FSIA.