BILL ANALYSIS                                                                                                                                                                                                    



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          Date of Hearing:   May 4, 2010

                           ASSEMBLY COMMITTEE ON JUDICIARY
                                  Mike Feuer, Chair
           AB 2765 (Committee on Judiciary) - As Amended:  April 22, 2010 
           
          SUBJECT  :  Statute of Limitation: Recovery of Stolen Works of Art

           KEY ISSUES  : 

          1)Should the statute of limitation for recovering stolen works  
            of ART BE amended in order to clarify the application of  
            California's "discovery" rule?

          2)Should the statute of limitations for recovering stolen works  
            of art from a museum, gallery, dealer, or auctioneer be  
            extended from three to six years, in order to address the  
            practical difficulties of bringing such actions?

           FISCAL EFFECT  :  As currently in print this bill is keyed  
          non-fiscal.

                                      SYNOPSIS

          This non-controversial bill amends the statute of limitation  
          (SOL) relating to the recovery of stolen works of art or other  
          objects of historical or cultural significance in order to  
          clarify certain ambiguities noted in recent appellate court  
          opinions.  Most notably, this bill will clarify two critical  
          points: first, that the "discovery" rule adopted by the  
          Legislature in 1983 applies to works stolen before 1983; second,  
          that the Legislature adopted an "actual" rather than  
          "constructive" discovery rule.  In addition, this bill would  
          extend the SOL for actions brought against a museum, gallery,  
          dealer, or auctioneer to six years.  The bill seeks to address a  
          problem faced by persons who are attempting to recover art and  
          other valuable objects that may have been stolen several years  
          ago, passed through the hands of one or more bona fide  
          purchasers, and are then subsequently displayed in a museum or  
          gallery.  It is in the very nature of stolen art that it  
          circulates underground for several years before it appears in  
          museums and galleries, and by that time the SOL has long since  
          expired.  Even when applying the discovery rule, the imputation  
          of "constructive" discovery - which may be appropriate in other  
          contexts - does not lead to equitable results when works may be  








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          displayed anywhere in the world and traffickers engage in  
          purposeful concealment.  This bill would amend the SOL for  
          recovery of stolen art so as to clarify competing case law and  
          ensure more equitable results when the SOL is applied to the  
          theft of works of artistic, historic, and cultural significance.  
           There is no known opposition to this bill.  The issue was  
          brought to the attention of the Committee as a result of a  
          recent 9th Circuit Court opinion noting the inconsistencies in  
          the California appellate courts. 

           SUMMARY  :  Clarifies application of the "discovery rule" for  
          purposes of recovering works of historic, artistic, and cultural  
          significance and extends by three years the statute of  
          limitations for recovery of works from a museum, gallery,  
          auctioneer, or dealer.  Specifically,  this bill  :  

          1)Extends the statute of limitations for specific recovery of a  
            stolen article of historical, interpretive, scientific,  
            cultural, or artistic significance from three to six years if  
            the action for recovery is brought against a museum, gallery,  
            auctioneer, or dealer. 

          2)Clarifies, in response to differing appellate court rulings,  
            that the "discovery rule" for triggering the statute of  
            limitations for the recovery of articles of historical,  
            interpretive, scientific, cultural, or artistic significance  
            applies to property taken by theft prior to 1983, when the  
            discovery rule was first codified, and further clarifies that  
            "discovery" under the discovery rule means "actual" rather  
            than "constructive" discovery.

          3)Defines "actual discovery" to mean that the party bringing the  
            action has express knowledge of the identity and the  
            whereabouts of the person or entity that possesses the article  
            of historical, interpretive, scientific, cultural, or artistic  
            significance, and specifies that actual discovery does not  
            include constructive knowledge imputed by law. 

          4)Specifies that the statute of limitation as set forth in this  
            bill applies notwithstanding the state's "borrowing" statute  
            that permits application of another state's statute of  
            limitation under prescribed circumstances.

          5)Specifies that the provisions of this bill relating to actions  
            against a museum, gallery, auctioneer, or dealer shall apply  








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            to pending actions, as specified.  Specifies that previously  
            dismissed actions may be revived without prejudice if the  
            action was dismissed on statute of limitation grounds but  
            would not have been dismissed if the provisions of this bill  
            had applied at the time of dismissal. 

           EXISTING LAW  

          1)Provides, generally, that an action for taking, detaining, or  
            injury any goods or chattels, including actions for the  
            specific recovery of personal property, must be commenced  
            within three years.  (Code of Civil Procedure Section 338 (c)  
            (1).) 

          2)Provides that a cause of action for recovery in the case of  
            theft of any article of historical, interpretive, scientific,  
            or artistic significance is not deemed to have accrued until  
            the discovery of the whereabouts of the article by the  
            aggrieved party, his or her agent, or the law enforcement  
            agency that originally investigated the theft.  (Code of Civil  
            Procedure Section 338 (c) (2).) 

           COMMENTS  :  This bill amends the statute of limitation (SOL) in  
          CCP Section 338 (c) relating to the recovery of stolen works of  
          art or other objects of historical, artistic, or cultural  
          significance.  Specifically, it will primarily do three things:  
          (1) it will clarify that the "discovery" rule adopted in 1983  
          applies to works stolen before that date, thereby clarifying  
          disparate opinions of the California Courts of Appeal on this  
          point; (2) it will clarify that the discovery rule adopted by  
          the legislature was one of "actual" and not "constructive"  
          discovery; (3) it will extend to six years the SOL for actions  
          for specific recovery brought against a museum, gallery,  
          auctioneer, or dealer. 

           Purpose:   At one level, this bill seeks to clarify competing  
          interpretations of California's statute of limitations for the  
          specific recovery of personal property.  As importantly, it  
          seeks to address a vexing problem faced by theft victims who are  
          attempting to recover art and other valuable works that may have  
          been stolen several years ago, but where the victim only learns  
          the whereabouts of the work many years later.  It is in the very  
          nature of stolen art that it circulates underground for several  
          years before it appears in museums and galleries, and by that  
          time the SOL has long run its course.  Courts in California and  








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          elsewhere have long recognized that, given the nature of stolen  
          art, the proper trigger for the SOL should be the discovery by  
          the owner of the whereabouts of the work, not the time of theft  
          or even the time of the first public display of the work.   
          Appellate courts in California, however, have divided on two  
          critical questions: (1) whether the "discovery" rule that was  
          adopted by the Legislature in 1982 applies to works stolen  
          before 1983 (when the statute became effective); and (2) whether  
          the "discovery" rule was intended to require "actual" or  
          "constructive" discovery.  This bill would clarify these  
          questions for purposes of actions for brought to recover art, or  
          other works of historical or cultural significance, on display  
          in a museum or gallery.  In short, this bill would adopt the  
          reasoning of courts that have interpreted California's discovery  
          rule to (1) apply to works stolen before 1983 and (2) require  
          "actual" discovery.  In addition, this bill would extend the SOL  
          for recovering works from a gallery or museum from three to six  
          years.  

          Background: Adoption of the "Discovery Rule" in California  .   
          Most stolen art cases involve a conflict between two innocent  
          parties: a victim of art theft and a good faith purchaser who  
          did not know that he or she was buying a stolen good.  (The  
          thief of course is typically not identifiable or can be reached  
          by criminal actions.)  However, in such situations, the law  
          generally favors the theft victim, because it is a basic  
          principle of property law the possessor of property cannot pass  
          better title than he or she has.  A thief does not acquire legal  
          title to the stolen object.  Therefore, when the thief sells the  
          object, even to an innocent purchaser who has done no wrong, the  
          thief cannot transfer title to the property.  Accordingly the  
          good faith purchaser cannot transfer any title to a subsequent  
          purchaser, and so on down the line of the subsequent purchasers.  
           While this general rule favors the original owner over  
          subsequent good faith purchasers, the law nonetheless recognizes  
          the potential inequity to the good faith purchaser and requires  
          the original owner to bring any action for recovery in a  
          reasonable period of time prescribed by a SOL.  However,  
          especially in cases of stolen art, the theft victim may not  
          learn of the whereabouts of the work until long after the SOL  
          has expired.  In this case, a strict adherence to the SOL seems  
          unfair to the theft victim.  In an effort to balance the  
          competing equities, most states - either by statute or case law,  
          or some combination thereof - have adopted a "discovery" rule.   
          That is, the SOL does not begin to run until the theft victim  








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          discovers the whereabouts of the work and identifies its present  
          possessor. 

          California, like many other states, adopted an express discovery  
          rule in 1983, largely in response to the important ruling of  
          O'Keeffe v. Snyder (1980) 416 A.2d 862, decided by the New  
          Jersey Supreme Court.  In that case, the artist Georgia O'Keeffe  
          first brought an action in replevin in 1976 to recover to three  
          of her paintings that had been stolen from a gallery in 1946.   
          By the time that O'Keeffe discovered the whereabouts of the  
          paintings, they were in the hands of the defendant Snyder, who  
          by all accounts was a bona fide purchaser who did not know that  
          the paintings were stolen.  The trial court dismissed O'Keeffe's  
          complaint, claiming that New Jersey's six-year SOL had expired.   
          An intermediate appellate court then ruled in O'Keeffe's favor,  
          but it limited its ruling to the defendant's related "adverse  
          possession" claim.  The New Jersey Supreme Court, however,  
          returned to the question of the proper trigger for the SOL.  The  
          Court overruled the trial court's finding that the SOL expired  
          six years after the theft of the paintings, and instead  
          concluded that "O'Keeffe's cause of action accrued when she  
          first knew, or reasonably should have known through the exercise  
          of due diligence, of the cause of action, including the identity  
          of the possessor of the paintings."  (416 A.2d at 870; emphasis  
          added.)  The Court concluded that the SOL did not begin to run  
          at the time of theft or even when the paintings were first  
          publicly displayed.  Rather, the SOL only began to run when  
          O'Keeffe knew the identity of the present possessor.  A cause of  
          action in replevin - or for any recovery of personal property -  
          cannot possibly begin until the party bringing the action can  
          identify a possessor against whom to bring it.  

          In the wake of the O'Keeffe ruling a number of states, including  
          California, amended their replevin or other recovery statutes to  
          create an express discovery rule when it came to the efforts to  
          recover stolen works of art.  The California legislature passed  
          its bill in 1982, and the statute became effective in 1983.   
          Prior to 1983, Code of Civil Procedure Section 338(c) created a  
          three year SOL for an action to recover personal property that  
          had been wrongfully taken or detained.  The original statute was  
          silent as to whether the SOL would begin to run at the wrongful  
          taking or at discovery, and it did not distinguish works of art  
          from any other form of personal property.  The 1983, however,  
          created a special category for a work of "art or artifact" and  
          expressly provided that an action for specific recovery did not  








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          accrue until "discovery of the whereabouts" of the "art or  
          artifact."  (In 1989, the phrase "art or artifact" was changed  
          to read "article of historical, interpretive, scientific, or  
          artistic significance.")

           Relevant Case Law And the Application of California's Discovery  
          Rule.   One of the first cases to directly consider the scope of  
          the 1983 amendment was Naftzger v. American Numismatic Society  
          (1996) 42 Cal. App. 4th (Second Appellate District of CA).   
          Naftzger involved a museum's effort to recover coins that had  
          been stolen from the museum around 1970, though the museum did  
          not discover the whereabouts of the coins and their present  
          possessor (a bona fide purchaser who apparently had no knowledge  
          of the theft) until 1993.  The museum attempted to recover under  
          the 1983 statute but the trial court dismissed the action on SOL  
          grounds, arguing that the "discovery" rule adopted in 1983 did  
          not apply to works stolen prior to that date, since the SOL  
          would have long since expired before the statute was adopted.   
          The Court of Appeal overturned the trial court and held that the  
          discovery rule applied to works stolen before 1983 because the  
          older statute contained an implicit discovery rule.  The Court  
          reasonably assumed that when the Legislature enacted the  
          discovery rule in 1983 it was not creating a "new" discovery  
          rule; rather, similar to the reasoning in O'Keeffe, the Court  
          reasoned that there must have been an implicit discovery rule in  
          the older statute, since one cannot possibly bring an action in  
          specific recovery unless one can identify the whereabouts of the  
          object and identify its possessor.  The Legislature, it would  
          seem, was simply making the implicit rule express in order to  
          avoid confusion. 

          About six weeks after the Naftzger ruling, the Third Appellate  
          District Court of Appeal issued a contrary ruling in Society of  
          California Pioneers v. Baker (1996) 43 Cal. App. 774.  In a case  
          involving the theft of an engraved cane handle from a history  
          museum, the Third District appellate court held that the 1983  
          statute would not apply if the older SOL had already expired by  
          1983.  Thus, for Society of California Pioneers, it appears that  
          the operative date would not be 1983 but 1980.  A work stolen or  
          converted in 1980 would be subject to the 1983 amendment because  
          the old SOL had not yet expired, whereas a work stolen and  
          converted in 1979 might not be subject to the 1983 discovery  
          rule because the SOL would have expired.  Nonetheless, the Third  
          District expressly rejected the Naftzger holding that the 1983  
          discovery rule applies to both pre-1983 thefts, even pre-1980  








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          thefts where the SOL would have expired. 

          No subsequent California case has reconciled the contrary  
          holdings of Naftzger and Society of California of Pioneers.   
          However, a recent opinion by the United States Ninth Circuit  
          Court of Appeal highlighted the conflicting views in California.  
           (Marie von Saher v. Norton Simon Museum (2009) 578 F.3d 1016.)   
          The von Saher decision did not deal directly with the discovery  
          provision in the statute that would be amended by this bill.   
          Instead, von Saher was brought under Civil Code of Procedure  
          354.3, a 2002 statute that purported to extend the SOL for art  
          stolen by Nazis during World War II.  The Ninth Circuit struck  
          down Section 354.3 on the grounds that, by singling out art  
          stolen by a foreign regime, the statute was preempted under the  
          "foreign policy field preemption" doctrine.  Although this  
          proposed bill does not raise this issue, since it would apply to  
          any stolen works, the Court noted in dictum that von Saher's  
          action could have been brought under general recovery statute  
          that is the subject of this bill.  However, in doing so, the  
          Ninth Circuit also noted the uncertain state of this statute and  
          the conflicting California opinions in Naftzger and Society of  
          California Pioneers.  Taking its cue from this decision, this  
          bill will attempt to reconcile those competing appellate court  
          rulings by effectively adopting the Naftzger rule and making it  
          absolutely clear that the discovery rule applies to works stolen  
          before 1983.  Indeed, almost by definition of discovery rule  
          does not look to the date of the theft or conversion as the  
          relevant trigger. 

           "Actual" or "Constructive" Discovery?   Another issue raised in  
          Naftzger was not only when the discovery rule should be applied  
          but whether the Legislature adopted an "actual" or a  
          "constructive" discovery rule.  Under an "actual" discovery  
          rule, the SOL does not start running until the plaintiff  
          discovers the whereabouts of the stolen object and the identity  
          of its present possessor.  Thus, the operative trigger is the  
          plaintiff's actual knowledge of the facts necessary to bring an  
          action for specific recovery.  "Constructive" discovery - like  
          "constructive knowledge" in other areas of law - is imputed as a  
          matter of law if the person through reasonable diligence could  
          have discovered the relevant facts.  For recovery of most kinds  
          of personal property, the appropriate standard is often  
          "constructive" discovery.  This reflects a traditional view that  
          a person who has a right to bring a cause of action should not  
          sit on that right.  In order to bring some peace of mind to a  








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          bona fide purchaser who wants to quiet title, the court may  
          impute "constructive" knowledge, and hence constructive  
          discovery, as a matter of law.  Such imputations are especially  
          common in adverse possession cases, where the rightful owner not  
          only has an obligation to bring an appropriate action in a  
          timely manner, but also has an obligation to take note of  
          whether others are openly acting as the lawful owners of the  
          property.  However several leading cases, in California and  
          elsewhere, have concluded that stolen art is not like other  
          kinds of property, especially given that such thefts are often  
          accompanied by deliberate efforts to conceal the work and its  
          provenance.  (See e.g. Solomon Guggenheim Foundation v. Lubell  
          (1990) 550 N.Y.S. 2d 618; Natfzger, supra at 432-434.) 
           
          Extending the SOL to Six Years For Actions Against Museums and  
          Galleries.   Finally, in addition to reconciling differing court  
          opinions on the application and meaning of California's  
          discovery rule, this bill would also extend the SOL for the  
          limited purpose of bringing a cause of action for stolen works  
          that are in the possession of a museum, gallery, dealer, or  
          auctioneer.  The existing three year SOL was adopted for the  
          recovery of personal property that had been wrongfully taken or  
          converted more generally.  But as noted above in the discussion  
          of actual discovery, stolen art and other objects of historical  
          and cultural significance entail more complex legal problems  
          that justify a longer period of time.  According to attorneys  
          who litigate stolen art cases (see below), the three-year period  
          is often too short to take "into account the difficulties that  
          claimants continue to experience in discovering the underlying  
          facts and finding counsel to litigate their cases." (Attorneys  
          are sometimes reluctant to take such difficult cases, especially  
          when the action is only for recovery for the object and not for  
          any monetary damages.)  Moreover, six years seems more or less  
          consistent with other states, which range from a minimum of  
          three years (including California) to a maximum of ten years.   
          New York does not rely on any prescribed period and instead  
          adopts a "demand and refusal" rule: that is, the statute of  
          limitation is not triggered until the plaintiff demands that the  
          defendant return the work and the defendant refuses.  Some  
          scholars have suggested that a SOL for stolen art should be  
          eliminated altogether.  (Steven Bibas, "The Case Against  
          Statutes of Limitations for Stolen Art," 103 Yale L. J. (1994).   
          This bill does not go that far, and it only extends the statute  
          to six years for works held by museums, galleries, and  
          professional dealers.  The rationale for not extending the SOL  








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          as to non-professional buyers reflects the fact that museums,  
          galleries, and dealers are sophisticated purchasers who deal in  
          a large volume of works and are typically insured.  However, the  
          individual good-faith purchaser who makes a one-time purchase  
          would justifiably enjoy quiet title after the existing and  
          shorter period of three years. 
           
          ARGUMENT IN SUPPORT  :   E. Randol Schoenberg, an attorney and  
          leading expert in cases concerning stolen art works, writes that  
          "AB 2765 is a much-needed resolution of several long-standing  
          splits and disagreements in the law concerning stolen art  
          works."  According to Schoenberg, "one of the principal  
          difficulties with stolen art cases is the great lack of clarity  
          in the procedural law.  Often this leads to years of difficult  
          preliminary litigation, as the parties and the courts attempt to  
          determine what the law should be.  Ambiguities in the procedural  
          law frequently lead the parties to abandon or settle their  
          otherwise valid claims for recovery of stolen artwork."  In  
          addition to resolving the issue of whether California's  
          discovery rule applies to thefts occurring before 1983,  
          Schoenberg believes that this bill will clarify "that  
          'discovery' means 'actual,' not 'constructive' discovery."   
          Finally, Schoenberg notes that lengthening the statute of  
          limitations from three to six years for brining actions against  
                                 a museum or gallery "take[s] into account the difficulties that  
          claimants continue to experience in discovering the underlying  
          facts and finding counsel to litigate their cases.  In this  
          bill, the Legislature reaffirms its commitment to the rule that  
          a thief cannot convey good title, and that stolen art should be  
          returned to its original, rightful owner."  

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          E. Randol Schoenberg, Esq. 

           Opposition 
           
          None on file
           

          Analysis Prepared by  :    Thomas Clark / JUD. / (916) 319-2334 










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