Was New York Rule of Evidence Dispositive of Ownership of Austrian Painting?

Our news media regularly report on disputed claims to artwork taken during World War II. But, as a recent case illustrates, the passage of time and the crossing of national borders implicate many procedural and evidentiary rules that are unrelated to a particular painting’s provenance or country of origin.

In 1917, Austrian artist Egon Schiele made a portrait of his wife Edith. In 1964, the artwork was bought by art collector Robert Lehman, Sr. from an exhibition at an art gallery in London, England. And, later that year, Lehman, Sr. gifted the artwork to his son, Robert Owen Robin Lehman. In 2016, Robin gifted the artwork to the Robert Owen Lehman Fund, Inc., his eponymous foundation. After the Fund consigned the artwork to Christie’s for auction, two groups asserted competing claims of ownership of the artwork, alleging that the artwork left the possession of its rightful owner during the Holocaust. Israelitische Kultusgemeinde Wien represented the Susan Zirkl Memorial Foundation Trust, which claimed ownership of the artwork as an heir of Karl Maylander. Robert Rieger Trust and Michael Bar claimed ownership as heirs of Heinrich Rieger.

The Fund then sued the various claimants and sought a declaration that the Fund was the rightful owner of the artwork. Supreme Court denied Rieger’s motion for a change of venue or, in the alternative, to dismiss the Fund’s amended complaint. Rieger and Jacob Barak, the trustee of Rieger, then moved for leave to renew or reargue the motion and, in the alternative, to dismiss the Fund’s amended complaint against Rieger and Barak. Bar subsequently joined the motion of Rieger and Barak. Supreme Court denied the motion seeking leave to reargue.

On appeal, Rieger contended that Supreme Court erred in denying his motion to dismiss the amended complaint. Specifically, Rieger contended that the Fund did not have the standing to seek a declaration that it was the rightful owner of the artwork because the Fund’s tax returns did not list the artwork as an asset or state that it received the artwork in a gift transaction. And thus, under the doctrine of tax estoppel, the Fund could not assert in the suit that it owned the artwork. The appeals court rejected that contention.

Under the doctrine of tax estoppel, a party to litigation may not take a position contrary to a position taken in a tax return. Tax estoppel is applied where a party’s subsequently-adopted litigation position flatly contradicts express assertions previously made in tax filings. But the omission of an asset leaves all questions in regard to the asset open. The appeals court held that tax estoppel did not prevent the Fund from contending that it owned the artwork because the Fund did not affirmatively assert in the tax return that it did not own the artwork. The Fund simply did not list the artwork in a schedule of gifts that it received in 2016.

And the appeals court found that Supreme Court properly denied the motion to dismiss the amended complaint. The amended complaint stated a cause of action to quiet title to the artwork. The allegations in the amended complaint were sufficient to establish that the Fund owned the artwork.