Monday, April 13, 2015

Guest Blogger, Henry Lowenstein: Valuable Lessons in "Woman in Gold"

Today's post is generously shared by Henry Lowenstein, Professor at Coastal Carolina University.

This week premieres a new movie in theaters nationwide, Woman In Gold.  You may have seen the ads on TV, the true story of Maria Altman, a Jewish Austrian survivor of WWII's Holocaust and her decades-long efforts to retrieve fine art paintings looted from her family by the Nazis. Post War the Austrian government improperly laid claim to them.  Altman pursued the matter to the U.S. Supreme Court which ruled in her favor in 2004.  Austria then agreed to arbitration and returned the paintings (today on display in New York).

For students interested in international business Ms. Altman's story and the U.S. Supreme Court ruling on when a U.S. citizen (or business) can get relief from property stolen overseas prior to 1976 by bad acts of governments is instructive.  In Republic of Austria v. Altman 541 U.S. 677 (2004), the Supreme Court ruled the U.S. Foreign Sovereign Immunity Act of 1976 (28 U.S.C. sec. 1330 et. al) can be applied retroactively to conduct or wrongdoing that occurred prior to enactment of the law; that being a clear intent of Congress.   This cleared the way for Altman to sue Austria in U.S. courts to retrieve paintings rightfully belonging to her and her family stolen by the Nazi's in 1938, then allegedly owned by Austria's national museum.

Implications For Business:    There are markets now opening to China, Cuba Vietnam, Venezuela (previously Russia and former Soviet states) and other nations in which private/personal business property and assets were illegally seized by governments or revolutionaries.  

There is now a strong precedent.  The Supreme Court in its opinion stated that governments enjoy sovereign immunity (i.e. protection from private lawsuits) for public acts.   That is acts of normal functions of the state (jure imperil).  However, they are not exempt from suits for private bad acts under color of state law (jure gestionis).  What could this precedent mean today to business?
Let's take for example, Cuba.   In 1958 Conrad Hilton and the Hilton Hotels built in Havana, Cuba, the premier hotel, Habana Hilton; 572 rooms, 4 restaurants at a cost of $24 million (approximately $197 million in 2015 dollars).  In October 1960, revolutionaries led by Fidel Castro overthrew the elected Batista government of Cuba and seized the hotel (actually making it for a time Castro's headquarters).   The hotel was then renamed Hotel Tryp Habana Libre and continues to be run by and for the benefit of the Cuban government.  Hilton Hotels was never indemnified by the "new" Cuban government for the illegal taking of its property and had to long ago write off the loss on its books.
The Habana Hilton:

Now over half a century later, the Obama Administration is slowly opening relations with Cuba.  Fidel Castro is still alive but the Castros still run the country.  It is conceivable at some point that full tourism will resume to Havana (prior to 1959 a top tourism destination) and world hotels will try to come in.  What happens if the former Havana Hilton is sold?  Like Altman's Klimt paintings, Hilton might have a claim for the original value of the hotel stolen from it, or perhaps even a claim to have the hotel returned to them.   Many American corporations such as the sugar and mining industries might have like claims. 

In our global world of business today, many "businesses" in which you will do commerce are "state owned."  In some cases they will be covered by treaties as is the case in the European Union.  However, in many others, particularly emerging nations, "Jurisdiction" of disputes will be a constant battle and business risk as commerce expands with these entities.

Something to keep in mind as you watch the movie and move on in your business career.

An historical aside about the case;  Altman found it impossible to sue in Austrian courts because the rules of civil procedure there assess a "filing fee" as a percentage of the value of the property in dispute.  In her case, it would have originally cost over $1.3 million filing fee to file the case (the painting in dispute was worth $135 million)!!  The Austrian government agreed to lower the fee to around $300,000 but was still far above an individual’s means to pay.  That's when she (then a U.S. citizen) turned to the U.S. Courts!   Such a system in the US certainly would have a chilling effect and substantially reduce lawsuit volume, but also deny far too many due process.    

Woman in Gold Trailer:

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