First Department Finds 45-Year-Old General Release Sufficient To Bar Action To Recover Stolen Art

• Posted on: Jun 12 2019

Litigations often get settled before trial. When parties decide to settle their disputes, they typically agree to exchange mutual releases – i.e., they agree to give up any claims they have, and may have, against each other.  By exchanging releases, the parties to a settlement are, therefore, securing for themselves, and those bound by the release, complete peace from future litigation involving the same subject matter in their dispute.

Generally, a “release constitutes a complete bar to an action on a claim which is the subject of the release.” Centro Empresarial Cempresa S.A. v. America Movil, S.A.B. de C.V., 17 N.Y.3d 269, 276 (2011) (internal quotation marks and citation omitted). In fact, “a release may encompass unknown claims, including unknown fraud claims, if the parties so intend and the agreement is ‘fairly and knowingly made.’” Centro Empresarial Cempresa, 17 N.Y.3d at 276, quoting Mangini, 24 N.Y.2d at 566-567.  Thus, “if ‘the language of a release is clear and unambiguous, the signing of a release is a “jural act” binding on the parties.’” Id., quoting Booth v. 3669 Delaware, 92 N.Y.2d 934, 935 (1998), quoting Mangini v. McClurg, 24 N.Y.2d 556, 563 (1969).

“Although a defendant has the initial burden of establishing that it has been released from any claims, a signed release ‘shifts the burden of going forward . . . to the [plaintiff] to show that there has been fraud, duress or some other fact which will be sufficient to void the release.’” Centro Empresarial Cempresa, 17 N.Y.3d at 276 (“A release may be invalidated, however, for any of the traditional bases for setting aside written agreements, namely, duress, illegality, fraud, or mutual mistake”) (internal quotation marks and citation omitted), quoting Fleming v. Ponziani, 24 N.Y.2d 105, 111 (1969). “A plaintiff seeking to invalidate a release due to fraudulent inducement must ‘establish the basic elements of fraud, namely a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury.’” Id., quoting Global Mins. & Metals Corp. v Holme, 35 A.D.3d 93, 98 (1st Dept. 2006).

A party that releases “a fraud claim may later challenge that release as fraudulently induced only if it can identify a separate fraud from the subject of the release.” Id. (citation omitted). “Were this not the case,” observed the Court of Appeals, “no party could ever settle a fraud claim with any finality.” Id.

In Frenk v. Solomon, 2019 N.Y. Slip Op. 04654 (1st Dept. June 11, 2019) (here), the Appellate Division, First Department, applied the foregoing principles to affirm the dismissal of an action to recover certain art allegedly stolen during the Holocaust.

Frenk v. Solomon

Background

[Ed. Note: The discussion of the facts is taken from the motion court’s decision (here).]

Frenk involved the art collection of the Paul Westheim (“Westheim”), a Jewish art critic, who specialized in German expressionist art. In particular, the action involved five pieces in Westheim’s collection: Paul Klee’s Opus 18; Otto Mueller’s Drei Akte (also known as The Bathers); Max Pechstein’s Portrait of Paul Westheim (also known as Portrait of a Standing Man); Edgar Jene’s Plastische Imagination; and Erich Heckel’s The Violinist (collectively, “Five Works”).

In 1933, Westheim fled Nazi Germany for Paris and left his collection with Charlotte Weidler (“Weidler”), an art dealer in Berlin. During World War II, Westheim fled from France to Spain, then Portugal. Ultimately, he settled in Mexico in 1941, where he met and was later married to Marianna Westheim-Frenk, plaintiff’s mother. He also corresponded extensively, and in code, with Weidler during the war; however, those communications terminated after the war when Westheim inquired about the whereabouts of his art collection. Westheim died in 1963.

In 1973, Westheim-Frenk learned that Weidler had sold a painting from Westheim’s collection, the Portrait of Dr. Robert Freund, to a gallery in New York City. Westheim-Frenk commenced an action in the Supreme Court, New York County, against Weidler and others for damages and for “possession of all items of [Westheim’s] art collection” in Weidler’s custody (“1973 Action”). Westheim-Frenk also sought an accounting of Westheim’s art collection and “whatever sums of money [were] found to be due . . . on the basis of said account.”

Weidler filed a pre-answer motion to dismiss. Before the motion was decided or any discovery was exchanged, the parties agreed to discontinue the action “with prejudice” by stipulation, dated March 21, 1974. In connection with the settlement, Westheim-Frenk executed a broad release (“Release”) discharging Weidler, among others, of any claims that she had and may have had with respect to the art collection.

The Release also specified that it could not be amended orally. No other documents set forth the terms of the settlement of the 1973 Action. In consideration for the Release, Westheim-Frenk received $7,500.

In the current action, plaintiff, Westheim-Frenk’s daughter, alleged that, in August 2010, defendants admitted that they possessed (or, in the case of The Violinist, had possessed before its sale at auction in 1998) the Five Works. Plaintiff initiated the action in January 2013 seeking a judgment declaring her rightful ownership of the Five Works, replevin, and an accounting, as well as damages for unjust enrichment, conversion, and violation of both a bailment and a constructive trust.

In December 2013, defendants filed a pre-answer motion to dismiss, which the motion court denied, except to the extent that plaintiff’s claim for breach of warranty of title was dismissed without prejudice. The First Department affirmed that decision, stating that “[g]iven plaintiff’s allegation raising the inference that the stipulation of discontinuance with prejudice and the general release of claims in [the 1973 Action] were not intended to encompass the instant claims, and her allegations of fraudulent inducement raising equitable considerations,” dismissal without discovery would be premature. Frenk v. Solomon, 123 A.D.3d 416, 416 (1st Dept. 2014) (here).

After discovery, defendants moved for summary judgment.

The motion court granted the motion, holding, in part, that the Release barred the action.

Here, the doctrines of contractual release and res judicata apply to the Release and 1974 stipulation of discontinuance. After filing a lawsuit involving “all items of [Mr. Westheim’s] art collection,” Ms. Westheim-Frenk chose to settle and discontinue the 1973 Action “with prejudice” on the advice of her New York counsel. Ms. Westheim-Frenk also contemporaneously executed the Release, supported by consideration, which bars “all manner of actions” against Ms. Weidler and Ms. Weidler’s “successors and assigns.” By its terms, the Release applies to all actions Ms. Westheim-Frenk’s “heirs . . . can, shall or may have” involving “any matter, cause or thing whatsoever from the beginning of the world to the day of the date of these presents.”

The motion court also rejected plaintiff’s contention that the Release applied to only one painting, the Kokoschka painting, Portrait of Dr. Robert Freund. The court found that the argument was not supported by sufficient admissible evidence.

The motion court further rejected plaintiff’s argument that the Release was procured by fraud – i.e., that there were no other pieces of artwork from Westheim’s collection. In this regard, the court held that the “alleged fraudulent misrepresentation was precisely the subject of the terminated 1973 Action: whether there were more artworks from Mr. Westheim’s collection” and, thus, insufficient to state a claim for a fraud separate from the release.

Plaintiff appealed. The First Department unanimously affirmed.

The First Department’s Decision

The Court held that the “motion court correctly found that [the] action … [was] barred by the general [R]elease and stipulation of discontinuance in the 1973 Action….” Slip Op. at *1. Like the motion court, the First Department found that “Plaintiff failed to present evidence that [Westheim-Frenk] intended to release claims with regard to one single painting only.” Id. The Court explained that, “on its face, the [R]elease encompasse[d] all claims of any kind whatsoever, and the 1973 lawsuit sought the return of any and all works of art alleged to have been formerly owned by Westheim.” Id.

The Court also held that “[p]laintiff failed to present evidence” demonstrating that the Release was procured by a fraud separate from the Release. Id. Lying about the whereabouts of the artwork was the subject of the complaint in the 1973 Action. Therefore, concluded the Court, the facts supporting the Release were the same as those that supported the alleged fraud:

The claim of fraudulent inducement is supported by the allegations that Charlotte Weidler, Westheim’s former colleague, friend, and lover, had converted art entrusted to her by Westheim and lied about its whereabouts in the years after the Second World War. These allegations do not establish a fraud separate from the subject of the release but are the same facts as those alleged in the 1973 complaint.

Id. (citations omitted).

Moreover, the Court held that even if plaintiff did allege a fraud separate from the Release, her claims would still fail.  Plaintiff could not satisfy the reasonable reliance element of a fraud claim: “plaintiff cannot establish reasonable reliance upon any statements allegedly given by Weidler to Frenk-Westheim that Weidler had no other knowledge of the Westheim art collection, in view of the fact that Weidler had advised Frenk-Westheim’s counsel that she had additional works, but they were all either gifts from Westheim or purchased from him.” Id. (citation omitted).

Takeaway

General releases are viewed as any other contract provision. When they are clear and unambiguous, the courts will enforce them according to their terms.

In Frenk, the Release was broad and encompassed any and all claims, known and unknown, concerning the 1973 Action. In light of the broad scope of the Release, Frenk serves as a reminder (and a warning) to practitioners to tailor their releases to the subject matter intended by the parties. Otherwise, a party challenging the release may find that it covered more than what was thought or intended.