Seventy years ago, Nazi forces and the Hungar­ian government seized a trove of art belonging to the family of Baron Mór Lipót Herzog, a Jewish Hungarian collector. Herzog’s heirs have fought since the end of World War II to recover pieces from the collection, scoring a recent win in the U.S. Court of Appeals for the D.C. Circuit.

A three-judge panel affirmed a lower court’s order denying the Hungarian government’s motion to dismiss the Herzog heirs’ case. The April 19 ruling represented the latest test of the Foreign Sovereign Immunities Act in cases involving art and other property seized by foreign governments.

Michael Shuster of Holwell Shuster & Goldberg in New York, lead counsel for Herzog’s heirs, said they were pleased with the decision and prepared to pursue the claims. "At the same time," he said, "I would like to see Hungary step up at this point, now that their various technical arguments have been made and rejected, and do the right thing and return the art without the need for future litigation."

Hungry reasserted its claim to the art after the decision came down. "What’s pleasing to us is [the court] reaffirmed that the bar for the plaintiffs to overcome is extremely high," said Nixon Peabody partner Thaddeus Stauber, lead counsel for Hungary. Early dismissal in art ownership cases is rare, he said, and they were confident the claims would be dismissed once the record is developed.

Herzog’s collection included more than 2,000 paintings, sculptures and other works spanning various artistic periods, from Domenikos Theotokopoulos — known as "El Greco" — in the late 16th century to more modern artists, according to court filings. During World War II, the Hungarian government, working with the Nazis, began seizing property from Jewish families. Herzog’s heirs tried to hide the collection, to no avail.

The heirs said they tried to negotiate the return of the collection following the war, but received only a few works by "little known artists," and not the "masterworks" on display at Hungarian museums.

Family members unsuccessfully pursued litigation in Hungarian courts through early 2008, then filed suit in U.S. District Court for the District of Columbia in July 2010. The complaint listed more than 40 paintings, sculptures and other objects with an estimated value exceeding $100 million.

Attorneys for Hungary argued the Washington court lacked jurisdiction. In September 2011, U.S. District Judge Ellen Segal Huvelle denied most of Hungary’s motion to dismiss. She did toss out claims related to 11 works, however, ­citing a Hungarian court decision that the govern­ment was entitled to keep those pieces. Both sides appealed. The D.C. Circuit heard arguments in January.

Herzog’s heirs said the court held jurisdiction under exceptions to the Foreign Sovereign Immunities Act. Huvelle focused on the "expropriation" exception — that Hungary seized the collection in violation of international law because Hungary didn’t consider Jews full citizens at the time.

D.C. Circuit Judge David Tatel, writing for the court, took a different approach. He focused on the "commercial activity" exception, writing that Hungary’s failure to comply with alleged agreements to return the art could be viewed as commercial activity with a direct effect on the United States. Lead plaintiff David de Csepel — Herzog’s great-grandson — is a U.S. citizen. Herzog’s heirs claimed the Hungarian government entered into an arrangement known as a bailment agreement, in which officials would protect the property while it was in their possession and return it when asked.

Hungary argued the only agreements dealing with the return of art were treaties, which wouldn’t be covered under the exception. Tatel wrote that because Herzog’s heirs claimed there was a specific bailment agreement related to the collection, their claims could survive the motion to dismiss.

Shuster said there was written evidence of a bailment agreement and that the heirs expected to uncover more during discovery. Stauber, however, said his team was confident there was no such agreement.

The appeals court reinstated the claims Huvelle dismissed. Tatel wrote that without more information, it was too soon to dismiss the claim that the heirs suffered due-process violations in the Hungarian court proceedings.

Sullivan & Worcester litigation partner Nicholas O’Donnell said the focus on a bailment agreement offered new guidance for plaintiffs in similar cases. "If there are works that ended up in national government hands, and there’s ambiguity about who gave permission for what, this is sort of a road map for that," he said.

Contact Zoe Tillman at ztillman@alm.com.