Commercial Division Finds Jurisdiction over Foreign Defendant on an Alter Ego Theory in Estate’s Action to Recover Painting Plundered in Nazi-Occupied France

In a decision issued last month in Gowen v. Helly Nahmad Gallery, Inc., No. 650646/2014, 2018 NY Slip Op 28142, 2018 BL 164601, Commercial Division Justice Eileen Bransten found personal jurisdiction over foreign defendants in an action brought by the estate of a Jewish art dealer to recover a valuable painting plundered by the Nazis in occupied Paris.  Justice Bransten further held that New York’s substantive law applies to the dispute over the painting’s ownership, proclaiming that “New York markets are not now, and shall not become, a safe harbor for the fruits of property pillaged during the course of the Nazi genocide.”  Beyond its compelling subject matter, the opinion provides useful guidance for plaintiffs considering pleading jurisdiction over non-domiciliary defendants on an alter ego theory.

The Painting’s History

The painting in dispute is “Seated Man with Cane” (1918) by the modern Italian Jewish painter Amadeo Clemente Modigliani (1884-1920).  In the 1930s, the painting was part of the private collection of Oscar Stettiner, a Jewish art dealer in Paris.  But as the Nazis advanced toward France in 1939, Stettiner was forced to flee, leaving the painting behind with many other possessions.  The painting was then looted by the Nazis and sold at a public auction, as was the fate of many Jewish individuals’ possessions in Nazi-occupied countries.  Although these Nazi forced sales were declared null and void in 1946 and Stettiner obtained an order from a French court for the painting’s return, Stettiner was unable to locate and reclaim the painting.  Indeed, the painting eluded Stettiner and his heirs for decades despite their efforts to locate it.

The painting finally surfaced at a 1996 auction at Christie’s in London, where it was misidentified and sold to defendant, Panamanian corporation International Arts Center (IAC).  IAC displayed the painting at defendant Helly Nahmad Gallery in New York in 2005 and 2006, and then unsuccessfully attempted to sell it at a Sotheby’s auction in New York in 2008.  In 2011, Stettiner’s sole heir wrote to the defendants demanding return of the painting.  When defendants did not respond, the estate commenced litigation.

The Court’s Personal Jurisdiction Analysis on Defendants’ Motion to Dismiss

Defendants IAC and Davide Nahmad (the principal of IAC) moved to dismiss for lack of personal jurisdiction under CPLR 3211(a)(8), arguing that they are not domiciled in New York and have not conducted business in New York sufficient to establish jurisdiction. 

The court disagreed, holding that IAC was subject to jurisdiction on two grounds:  under CPLR 302(a)(1) for having transacted business in New York through its agents; and under CPLR 302(a)(2) for having committed a tortious act in the State.  On the first ground, the court observed that IAC engaged the Helly Nahmad Gallery in New York to sell art to which IAC holds title.  On the second ground, IAC’s failure to answer the demand by Stettiner’s heir for the painting’s return, which was made in New York, gave rise to a cause of action in tort within the State.

As for the individual defendant, Davide Nahmad, Justice Bransten found personal jurisdiction by and through his alter ego, defendant IAC.  The court pointed to a number of facts concerning the defendants’ alter-ego relationship, including: Nahmad is the principal and sole shareholder of IAC; IAC was formed by a law firm linked to the infamous “Panama Papers” known for creating shell corporations; Nahmad was quoted in the New York Times as having said “the International Art Center is me personally”; Nahmad is alleged to have used IAC to conceal his identity and perpetuate a wrong; and IAC is allegedly underfunded, fails to adhere to corporate formalities, and has no independent directors.

Once the court found jurisdiction over the defendants, the absence of the painting itself from New York (it is being held by Nahmad and IAC in a vault in Switzerland) was of no moment.  The court made short work of defendants’ argument that the court lacked jurisdiction over the painting, holding under “an overarching principle of New York law” that “where there is personal jurisdiction over the parties, one party cannot hide its assets outside of New York State so as to render any judgment obtained in New York unenforceable.”

Choice of Law

Justice Bransten rejected the defendants’ arguments that Swiss or French law should apply to the dispute.  The court found that, under a conflict of laws analysis, New York has the greatest interest in the litigation: “Given New York’s reputation as being a world-renowned center for art and culture, New York has a vested interest in protecting its stream of commerce from those who would seek to profit from plunder and pillage.” 

Takeaway

While alter ego theories are often put forward by plaintiffs to establish one party’s liability for the actions of another or to seek satisfaction of a judgment from a deeper pocket, Gowen illustrates that such allegations can be used to establish personal jurisdiction over a defendant as well. 

By Jordan M. Engelhardt and Muhammad U. Faridi