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Federal prosecutors will be able to pursue a forfeiture action against a painting stolen from an Austrian art dealer during the widespread seizing of Jewish property by the Nazis before World War II, a Southern District of New York judge has ruled. Chief Judge Michael B. Mukasey rejected a motion to dismiss the forfeiture action, brought by New York’s Museum of Modern Art and an Austrian museum, for the Egon Schiele painting “Portrait of Wally.” The ruling in United States v. Portrait of Wally, 99 Civ. 9940, reverses an earlier decision by the judge, who initially dismissed the forfeiture action and ordered the return of the painting to Austria in 2000. The painting was taken from Lea Bondi Jaray, an Austrian Jew, in April 1938 by Friedrich Welz, shortly after the annexation of Austria by the German Reich. The U.S. Army seized “Portrait of Wally” at the close of the war from Welz, who was arrested as a war criminal, but the Army mistakenly handed the painting over to the wrong family, the heirs of the Rieger family. By 1994, the painting had been sold to the Leopold Museum-Privatstiftung, which loaned “Portrait of Wally” to the Museum of Modern Art in 1997. Its arrival in the United States touched off a legal battle that continues to this day. Following an exhibit at MOMA, the New York County district attorney’s office issued a subpoena for the painting that was ultimately quashed by the New York Court of Appeals. Then-Southern District U.S. Attorney Mary Jo White entered the dispute, obtaining a seizure warrant for the painting after convincing a federal magistrate that the Leopold had violated the National Stolen Property Act by transporting stolen artwork in foreign commerce. Mukasey lifted the seizure warrant, finding that the U.S. armed forces, which were charged with returning paintings and other property stolen by imprisoned suspects such as Welz, had an “agency” relationship with the original owners of the painting. “Although the painting may not have been placed in the correct hands when the Rieger heirs received it, in the eyes of the law it was no longer stolen,” Mukasey said. The government filed an amended complaint challenging Mukasey’s finding that the painting was not stolen property, and his determination that the armed forces were acting as an agent of Lea Bondi Jaray. The judge reconsidered his decision and permitted a third complaint in which he allowed the government to refute the agency theory. On Friday, Mukasey said he was convinced. “Based on the new factual allegations that followed, I now find the recovery doctrine inapplicable because the United States armed forces cannot properly be deemed an agent of Bondi,” he said. ALLEGATION ‘RETRACTED’ The government, he said, “retracted” its earlier allegation that the armed forces were “holding stolen works of art with an eye toward their eventual restitution, which, as noted above, formed the predicate for implied agency.” Instead, Mukasey said, “allied forces seized all the property of suspected war criminals, regardless of whether it was stolen, Aryanized, or legitimately acquired.” Millions of items were seized in this fashion, he said, and the property was then returned to its country of origin. “Under these circumstances, it can no longer be said that the United States military acted as Bondi’s agent when it came into possession of ‘Wally,’” he said. “Rather than ‘recovering’ stolen property, the United States armed forces were simply collecting all property. They did not even know that ‘Wally’ was stolen.” And the point of the recovery doctrine, the judge said, “rests on the agent’s knowledge that stolen property was recovered.” STILL CONSIDERED STOLEN The chief judge went on to rule that despite arguments by the Leopold to the contrary, the painting could still be considered “stolen” when it came to the United States in 1997. Mukasey, rejecting several other grounds under which MOMA and the Leopold sought dismissal of the case, found that the government had stated a claim upon which relief can be granted. Assistant U.S. Attorneys Barbara A. Ward and Sharon Cohen Levin represented the government. William M. Barron, Karl Geercken and Brigit Kurtz of Alston & Bird represented the Leopold. Evan A. Davis, Richard F. Ziegler and J.J. Gass of Cleary Gottlieb Steen & Hamilton represented MOMA.

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