Deweerth v. Baldinger

WALKER, Circuit Judge:

This appeal is the latest episode in a decade-long dispute over the ownership of an oil painting entitled “Champs de Blé à Vétheuil” by Claude Monet. The work by the celebrated French Impressionist was previously owned by plaintiff Gerda Dorothea DeWeerth, a German citizen. It was discovered missing from DeWeerth's family castle after World War II, and was subsequently purchased by defendant Edith Marks Baldinger, a New York resident, from third-party-defendant Wildenstein & Co., a New York art gallery. Baldinger and Wildenstein & Co. (referred to collectively as “defendants”) appeal from a judgment entered in the United States District Court for the Southern District of New York (Vincent L. Broderick, Judge ) that granted DeWeerth's motion pursuant to Fed.R.Civ.P. 60(b) for relief from the final judgment entered in favor of defendants in accordance with our decision in DeWeerth v. Baldinger, . . . and entered a new judgment in plaintiff's favor. Defendants contend that the district court was precluded from considering DeWeerth's motion by both jurisdictional principles and the doctrine of the law of the case; that the district court abused its discretion in ordering relief pursuant to Rule 60(b)(5) and (6); and that the district court wrongly entered judgment in favor of DeWeerth based on the erroneous conclusions that her claim was not barred by laches and that her right to possession of the painting was superior to Baldinger's. We conclude that the district court was not barred from considering DeWeerth's motion, but that it abused its discretion in ordering relief from the final judgment based on Rule 60(b).

BACKGROUND

The facts of this case were fully explicated in the district court's initial DeWeerth opinion, . . . and only a brief recitation of them will be provided here.

DeWeerth claims that her father purchased the Monet from a Berlin gallery in 1908 and that she inherited the painting after her father's death in 1922. She had the painting in her possession until 1943 when she transferred it to her sister's castle in southern Germany for safekeeping during World War II. DeWeerth's sister discovered that the painting was missing in 1945, after the departure of American soldiers who had been quartered in her home. The Monet resurfaced in 1956, at which time Wildenstein & Co. acquired it from a Swiss art dealer. Baldinger subsequently purchased the painting from Wildenstein in 1957 in undisputed good faith.

In 1982, DeWeerth discovered that Baldinger was in possession of the Monet and demanded its return. When Baldinger refused, DeWeerth promptly commenced a diversity action to recover it. Baldinger in turn brought a third-party action against Wildenstein & Co. which was subsequently severed pursuant to Fed.R.Civ.P. 42(b). In April 1987, after a bench trial, Judge Broderick found that DeWeerth had established a superior right to possession of the Monet and issued a ruling in her favor. . . . The district court specifically rejected Baldinger's two principal defenses of limitations and laches. The district court concluded that the three-year statute of limitations applicable to this action, . . . did not begin to run until Baldinger refused DeWeerth's demand for the painting. In answer to Baldinger's assertion of laches, the district court determined that DeWeerth had been reasonably diligent in the pursuit of the Monet after 1945 and that Baldinger had not been prejudiced by any delay in the demand for the painting's return. The district court ordered Baldinger to deliver the painting to DeWeerth.

In December 1987, another panel of this court reversed the district court's judgment on the ground that New York limitations law required a showing of reasonable diligence in locating stolen property and that DeWeerth had failed to make such a showing. . . . We found it unnecessary to consider Baldinger's alternative arguments that DeWeerth was guilty of laches and that she had failed to prove superior title. On February 5, 1988, we denied DeWeerth's petition for a rehearing, and on February 19, 1988, our mandate directing that the judgment in favor of DeWeerth be reversed was filed in the district court. On June 13, 1988, the Supreme Court denied DeWeerth's petition for a writ of certiorari. . . .

On May 2, 1991, DeWeerth brought a motion before us to recall the prior mandate and vacate the judgment in light of Solomon R. Guggenheim Foundation v. Lubell, . . . a decision by the New York Court of Appeals that held that the New York statute of limitations applicable to this action did not require a showing of reasonable diligence in locating stolen property. We denied the motion without opinion on May 17, 1991.

On September 27, 1991, DeWeerth moved in the district court for relief pursuant to Fed.R.Civ.P. 60(b)(5) and (6) on the same ground set forth in her motion to recall the mandate. By Memorandum Order dated October 16, 1992, Judge Broderick granted DeWeerth's motion and once again ordered Baldinger to surrender the Monet to DeWeerth. . . . Judgment was entered on February 2, 1993, and this appeal followed.

DISCUSSION

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Based on the New York Court of Appeals' opinion, the district court determined that DeWeerth would have prevailed in this case had she originally brought her suit in the New York state courts. It then held that Erie Railroad Co. v. Tompkins, . . . and its progeny entitled plaintiff to a modification of the final judgment in this case to avoid this inconsistency. It determined that the countervailing interest of both the parties and the courts in the finality of litigation was outweighed by the need “to prevent the working of an extreme and undue hardship upon plaintiff, to accomplish substantial justice and to act with appropriate regard for the principles of federalism which underlie our dual judicial system.” . . .

We have carefully considered the circumstances analyzed by the district court and conclude that they do not warrant relief under Rule 60(b)(6). While acknowledging that Judge Broderick engaged in a scholarly and thorough discussion of the issues, we think that his decision inappropriately disturbed a final judgment in a case that had been fully litigated and was long since closed. In our view, Erie simply does not stand for the proposition that a plaintiff is entitled to reopen a federal court case that has been closed for several years in order to gain the benefit of a newly-announced decision of a state court. The limited holding of Erie is that federal courts sitting in diversity are bound to follow state law on any matter of substantive law not “governed by the Federal Constitution or by Acts of Congress.” . . . However, the fact that federal courts must follow state law when deciding a diversity case does not mean that a subsequent change in the law of the state will provide grounds for relief under Rule 60(b)(6). . . . This principle also applies in federal cases where the Supreme Court has changed the applicable rule of law. . . .

DeWeerth argues that this case is distinguishable because the state court did not announce a “change in the law,” but rather clarified that New York law is-and always was-contrary to what the federal court held it to be. While we agree that Guggenheim did not involve a “change in the law” in the sense that it adopted a rule different from one that previously existed, we do not agree that Guggenheim stated that the question decided by the DeWeerth panel had long been settled in New York. The Guggenheim court stated only that New York's demand and refusal rule was well established; it did not state that the question of whether a due diligence requirement should be added to this rule was clearly settled. In fact, no earlier New York case had addressed this issue. The earlier DeWeerth panel noted that this question was an open one; although it could have certified the question to the New York Court of Appeals, it chose to decide the issue itself since it did not think the issue would “recur with sufficient frequency to warrant use of the certification procedure.” . . .

When confronted with an unsettled issue of state law, a federal court sitting in diversity must make its best effort to predict how the state courts would decide the issue. . . . The comprehensive opinion by now Chief Judge Jon O. Newman in DeWeerth accordingly surveyed New York caselaw and determined that a New York court called upon to decide the issue would be likely to impose a requirement of due diligence. The decision was based in part on the fact that plaintiff's argument would create an incongruity in the treatment of bona fide purchasers and thieves. In New York, the three-year statute of limitations starts running against thieves once the owner discovers that the art object has been stolen, while under plaintiff's theory, it would not start running against a good faith purchaser until he refused the owner's request to return the art object. The court determined in DeWeerth that this rule conflicted with a policy inherent in certain New York cases of protecting bona fide purchasers of stolen objects from stale claims by alleged owners. . . . Based on this incongruity, New York's policy of discouraging stale claims in other settings, and the fact that in most other states the limitations period begins to run when a good faith purchaser acquires stolen property thereby prompting due diligence on the part of the previous owner, we determined that New York courts would adopt a due diligence requirement for owners attempting to locate stolen property.

It turned out that the DeWeerth panel's prediction was wrong. However, by bringing this suit, DeWeerth exposed herself to the possibility that her adversaries would argue for a change in the applicable rules of law. By filing her state law claim in a federal forum, she knew that any open question of state law would be decided by a federal as opposed to a New York state court. The subsequent outcome of the Guggenheim decision does not impugn the integrity of the DeWeerth decision or the fairness of the process that was accorded DeWeerth. The result in this case would be no different if DeWeerth had filed her claim in state court and Baldinger had removed the action to federal court. The very nature of diversity jurisdiction leaves open the possibility that a state court will subsequently disagree with a federal court's interpretation of state law. However, this aspect of our dual justice system does not mean that all diversity judgments are subject to revision once a state court later addresses the litigated issues. Such a rule would be tantamount to holding that the doctrine of finality does not apply to diversity judgments, a theory that has no basis in Erie or its progeny.

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We conclude that the prior DeWeerth panel conscientiously satisfied its duty to predict how New York courts would decide the due diligence question, and that Erie and its progeny require no more than this. The fact that the New York Court of Appeals subsequently reached a contrary conclusion in Guggenheim does not constitute an “extraordinary circumstance” that would justify reopening this case in order to achieve a similar result. There is nothing in Erie that suggests that consistency must be achieved at the expense of finality, or that federal cases finally disposed of must be revisited anytime an unrelated state case clarifies the applicable rules of law. Attempting to obtain such a result through Rule 60(b)(6) is simply an improvident course that would encourage countless attacks on federal judgments long since closed. While our conclusion relies in part on our belief that the prior DeWeerth decision fully comported with Erie and did not, as plaintiff suggests, mistakenly apply settled state law and reach a clearly wrong result, we note that even if those were the circumstances, the doctrine of finality would still pose a considerable hurdle to reopening the final judgment in this case. Whether, in such circumstances, the result would be different if the issue were raised within one year pursuant to Rule 60(b)(1) is an issue we need not decide.

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CONCLUSION

For the foregoing reasons, we reverse the judgment of the district court.


OWEN, District Judge, dissenting.

I respectfully dissent.

The majority recognizes that in dismissing Mrs. DeWeerth's action on New York statute of limitations grounds, the prior “ DeWeerth panel's prediction was wrong.” It was wrong in adding to New York's well-established demand and refusal rule a due diligence requirement, which the panel then found had not been met. Nevertheless, the majority leaves the dismissal standing, asserting first, that the prior panel was confronted with “an unsettled issue of state law,” and second, that the doctrine of finality of judgments outweighs “any injustice DeWeerth believes she has suffered by litigating her case in the federal as opposed to the state forum.”

I am unable to accept either of these conclusions. As to the majority's view that the pre- DeWeerth New York law was “unsettled”, no prior New York statute of limitations ruling had any suggestion of a pre-demand due diligence requirement, or that the issue was ever raised, or even could have been considered. . . .

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The clear applicability of Rule 60(b)(6) to this case was well-stated by Judge Broderick below, . . . :

"The range of fundamental policy and constitutional considerations which have informed the Erie doctrine are fully evident in the present case. Failure to act on the present Rule 60 motion would deny Mrs. DeWeerth the right to recover her property solely because she initially brought this action in federal rather than state court. Had Mrs. DeWeerth brought suit in state court, her claim would have been deemed timely commenced under the applicable statute of limitations.

Such inconsistency is exactly the type of result that Erie was enacted to avoid. As Justice Frankfurter noted, “[t]he nub of the policy that underlies Erie R. Co. v. Tompkins is that for the same transaction the accident of a suit by a non-resident litigant in a federal court instead of in a State Court a block away should not lead to a substantially different result.” Guaranty Trust Company of New York v. York, . . ."


I am, of course, unhesitatingly one with the majority as to the “integrity of the [prior] DeWeerth decision [and] ... the fairness of the process that was accorded DeWeerth.” However, given the majority's acknowledgement “that the [prior] DeWeerth panel's prediction was wrong[,]” I cannot accept the result here that Mrs. DeWeerth, who sought our federal diversity jurisdiction, must now suffer the consequences not only of the said soon-corrected prediction, but also today's determination by the majority that for us to grant her Rule 60(b)(6) relief would have the Court embark on “simply an improvident course that would encourage countless attacks on federal judgments long since closed.” Little more than two and one-half years elapsed from the denial of certiorari in the first DeWeerth appeal, and Guggenheim's authoritative pronouncement. Rule 60 exists as a remedy in an extraordinary case to accomplish justice, . . . This I see as such a case. Should not the impact of Guggenheim rather be shouldered by us, notwithstanding the integrity of our error? While the doctrine of finality of judgments does address an important interest, it should not deter us from using Rule 60 today to do justice because we may have to deal hereafter with the Rule's invocation in unworthy cases.

Accordingly, contrary to the majority, I see no abuse of discretion by the District Court and would affirm on the scholarly and thorough opinion of Judge Broderick below.