(From an appeal made to the United States Court of Appeals for the Seventh Circuit, 917 F.2d 278 (1990))


Plaintiffs-Appellees, v.





United States Court of Appeals for the Seventh Circuit, 917 F.2d 278 (1990).

BAUER, Chief Judge. There is a temple in ruin stands, Fashion'd by long forgotten hands; Two or three columns, and many a stone, Marble and granite, with grass o'ergrown! Out upon Time! it will leave no more Of the things to come than the things before! Out upon Time! who for ever will leave But enough of the past and the future to grieve O'er that which hath been, and o'er that which must be: What we have seen, our sons shall see; Remnants of things that have pass'd away, Fragments of stone, rear'd by creatures of clay!1

Byron, writing here of the Turkish invasion of Corinth in 1715, could as well have been describing the many churches and monuments that today lie in ruins on Cyprus, a small, war-torn island in the eastern corner of the Mediterranean Sea. In this appeal, we consider the fate of several tangible victims of Cyprus' turbulent history: specifically, four Byzantine mosaics created over 1400 years ago. The district court awarded possession of these extremely valuable mosaics to plaintiff-appellee, the Autocephalous Greek-Orthodox Church of Cyprus ("Church of Cyprus" or "Church"). Defendants-appellants, Peg Goldberg and Goldberg & Feldman Fine Arts, Inc. (collectively "Goldberg"), claim that in so doing, the court committed various reversible errors. We affirm.

I. Background

In the early sixth century, A.D., a large mosaic was affixed to the apse of the Church of the Panagia Kanakaria ("Kanakaria Church") in the village of Lythrankomi, Cyprus. The mosaic, made of small bits of colored glass, depicted Jesus Christ as a young boy in the lap of his mother, the Virgin Mary, who was seated on a throne. Jesus and Mary were attended by two archangels and surrounded by a frieze depicting the twelve apostles. The mosaic was displayed in the Kanakaria Church for centuries, where it became, under the practices of Eastern Orthodox Christianity, sanctified as a holy relic. It survived both the vicissitudes of history, and, thanks to restoration efforts, the ravages of time. 2

Testimony before Judge Noland established that the Kanakaria mosaic was one of only a handful of such holy Byzantine relics to survive into the twentieth century. . . . Sadly, however, war came to Cyprus in the 1970s, from which the mosaic could not be spared.

The Cypriot people have long been a divided people, approximately three- fourths being of Greek descent and Greek-Orthodox faith, the other quarter of Turkish descent and Muslem faith.3 No sooner had Cyprus gained independence from British rule in 1960 than this bitter division surfaced. Civil disturbances erupted between Greek and Turkish Cypriots, necessitating the introduction of United Nations peacekeeping forces in 1964. 4 (U.N. forces still remain in Cyprus.) Through the 1960s, the Greek Cypriots, concentrated in the southern part of the island, became increasingly estranged from the Turkish Cypriots, concentrated in the north.

The tensions erupted again in 1974, this time with more violent results. In July, 1974, the civil government of the Republic of Cyprus was replaced by a government controlled by the Greek Cypriot military. In apparent response, on July 20, 1974, Turkey invaded Cyprus from the north. By late August, the Turkish military forces had advanced to occupy approximately the northern third of the island. The point at which the invading forces stopped is called the "Green Line." To this day, the heavily-guarded Green Line bisects Nicosia, the capital of the Republic, and splits the island from east to west.

The Turkish forces quickly established their own "government" north of the Green Line. In 1975, they formed what they called the "Turkish Federated State of Cyprus" ("TFSC"). In 1983, that administration was dissolved, and the "Turkish Republic of Northern Cyprus" ("TRNC") was formed. These "governments" were recognized immediately by Turkey, but all other nations in the world-- including the United States--have never recognized them, and continue to recognize the Republic of Cyprus ("Republic"), plaintiff-appellee in this action, as the only legitimate government for all Cypriot people.

The Turkish invasion led to the forced southern exodus of over one-hundred thousand Greek Cypriots who lived in northern Cyprus. Turkish Cypriots living in southern Cyprus (and tens of thousands of settlers from mainland Turkey) likewise flooded into northern Cyprus, resulting in a massive exchange of populations.

Lythrankomi is in the northern portion of Cyprus that came under Turkish rule. Although the village and the Kanakaria Church were untouched by the invading forces in 1974, the villagers of Greek ancestry were soon thereafter "enclaved" by the Turkish military. Despite the hostile environment, the pastor and priests of the Kanakaria Church continued for two years to conduct religious services for the Greek Cypriots who remained in Lythrankomi. Hardy as they must have been, these clerics, and virtually all remaining Greek Cypriots, were forced to flee to southern Cyprus in the summer of 1976. Church of Cyprus officials testified that they intend to re-establish the congregation at the Kanakaria Church as soon as Greek Cypriots are permitted to return safely to Lythrankomi. (Thirty-five thousand Turkish troops remain in northern Cyprus.)5

When the priests evacuated the Kanakaria Church in 1976, the mosaic was still intact. In the late 1970s, however, Church of Cyprus officials received increasing reports that Greek Cypriot churches and monuments in northern Cyprus were being attacked and vandalized, their contents stolen or destroyed. (Such reports were necessarily sketchy and unverifiable as officials from the Republic and Church of Cyprus have been denied access to northern Cyprus.) In November, 1979, a resident of northern Cyprus brought word to the Republic's Department of Antiquities that this fate had also befallen the Kanakaria Church and its mosaic. Vandals had plundered the church, removing anything of value from its interior. The mosaic, or at least its most recognizable and valuable parts, had been forcibly ripped from the apse of the church. Once a place of worship, the Kanakaria Church had been reduced to a stable for farm animals.

Upon learning of the looting of the Kanakaria Church and the loss of its mosaics (made plural by the vandals' axes), the Republic of Cyprus took immediate steps to recover them. As discussed in greater detail in Judge Noland's opinion [at trial], t. . . [T]hese efforts took the form of contacting and seeking assistance from many organizations and individuals, including the United Nations Educational, Scientific and Cultural Organization ("UNESCO"); the International Council of Museums; the International Council of Museums and Sites; Europa Nostra (an organization devoted to the conservation of the architectural heritage of Europe); the Council of Europe; international auction houses such as Christie's and Sotheby's; Harvard University's Dumbarton Oaks Institute for Byzantine Studies; and the foremost museums, curators and Byzantine scholars throughout the world. The Republic's United States Embassy also routinely disseminated information about lost cultural properties to journalists, U.S. officials and scores of scholars, architects and collectors in this country, asking for assistance in recovering the mosaics. The overall strategy behind these efforts was to get word to the experts and scholars who would probably be involved in any ultimate sale of the mosaics. These individuals, it was hoped, would be the most likely (only?) actors in the chain of custody of stolen cultural properties who would be interested in helping the Republic and Church of Cyprus recover them.

The Republic's efforts have paid off. In recent years, the Republic has recovered and returned to the Church of Cyprus several stolen relics and antiquities. The Republic has even located frescoes and other works taken from the Kanakaria Church, including the four mosaics at issue here. These four mosaics, each measuring about two feet square, depict the figure of Jesus, the busts of one of the attending archangels, the apostle Matthew and the apostle James. . . .

To understand how these pieces of the Kanakaria mosaic resurfaced, we must trace the actions of appellant Peg Goldberg and the other principals through whose hands they passed in 1988.

Peg Goldberg is an art dealer and gallery operator. Goldberg and Feldman Fine Arts, Inc., is the Indiana corporation that owns her gallery in Carmel, Indiana. In the summer of 1988, Peg Goldberg went to Europe to shop for works for her gallery. Although her main interest is 20th century paintings, etchings and sculptures, Goldberg was enticed while in The Netherlands by Robert Fitzgerald, another Indiana art dealer and "casual friend" of hers, to consider the purchase of "four early Christian mosaics." In that connection, Fitzgerald arranged a meeting in Amsterdam for July 1st. At that meeting, Fitzgerald introduced Goldberg to Michel van Rijn, a Dutch art dealer, and Ronald Faulk, a California attorney. Van Rijn and Faulk were strangers to Goldberg. All she knew about them was what she learned in their few meetings, which included the fact that van Rijn, a published expert on Christian icons (she was given a copy of the book), had been convicted by a French court for art forgery; that he claimed to be a descendant of both Rembrandt and Rubens; and that Faulk was in Europe to represent Fitzgerald and van Rijn.

At that first meeting in Amsterdam on July 1, 1988, van Rijn showed Goldberg photographs of the four mosaics at issue in this case and told her that the seller wanted $3 million for them. Goldberg testified that she immediately "fell in love" with the mosaics. Van Rijn told her that the seller was a Turkish antiquities dealer who had "found" the mosaics in the rubble of an "extinct" church in northern Cyprus while working as an archaeologist "assigned (by Turkey) to northern Cyprus." (Goldberg knew of the Turkish invasion of Cyprus and of the subsequent division of the island.) As to the seller, Goldberg was also told that he had exported the mosaics to his home in Munich, Germany with the permission of the Turkish Cypriot government, and that he was now interested in selling the mosaics quickly because he had a "cash problem." Goldberg was not initially given the seller's identity. Goldberg also learned that Faulk, on behalf of Fitzgerald and van Rijn, had already met with this as-yet-unidentified seller to discuss the sale of these mosaics. Her interest quite piqued, Goldberg asked Faulk to return to Munich and tell the seller--whose identity, she would eventually learn, was Aydin Dikman--that she was interested.

Faulk dutifully took this message to Dikman in Munich, and returned to Amsterdam the following day. Faulk returned from that meeting with a contract he signed as agent for van Rijn to purchase the mosaics from Dikman for $350,000. When Goldberg met with Faulk on July 2, she was not told of this contract, however. Faulk merely informed her that Dikman still had the mosaics (though he was "actively negotiating with another buyer"), and that, in Faulk's opinion the export documents he had been shown by Dikman were in order. Faulk apparently showed Goldberg copies of a few of these documents, none of which, of course, were genuine, and at least one of which was obviously unrelated to these mosaics.

The next day (all of this happening rather fast). . ., the principals gathered again in Amsterdam. Goldberg, van Rijn, Fitzgerald and Faulk agreed to "acquire the mosaics for their purchase price of $1,080,000 (U.S.)." The parties agreed to split the profits from any resale of the mosaics as follows: Goldberg 50%; Fitzgerald 22.5%; van Rijn 22.5%; and Faulk 5%. A document to this effect was executed on July 4, 1988, which document included a provision reading, "This agreement shall be governed by and any action commenced will be pursuant to the laws of the state of Indiana."

. . . In those hectic early days of July, Goldberg contacted Otto N. Frenzel III, a friend and high-ranking officer at the Merchants National Bank of Indianapolis ("Merchants"), and requested a loan from Merchants of $1.2 million for the purchase of the mosaics. She told Frenzel that she needed $1,080,000 to pay van Rijn and the others, and she required the additional $120,000 to pay for expenses, insurance, restoration and the like. Merchants assured her that financing could be arranged, if she could provide appraisals and other documents substantiating the transaction. With Fitzgerald's and van Rijn's help, Goldberg obtained the appraisals (all three of which valued the mosaics at between $3 and $6 million), and sent them to Merchants. That done, she and Fitzgerald hurried to Geneva, Switzerland, for the transfer of the mosaics, which was to take place on July 5. After arriving in Switzerland, Goldberg learned that her requested loan had been approved by Merchants and the money would be forthcoming, though a few days behind schedule. Her financing secured, Goldberg proceeded to the July 5 meeting as scheduled. She could not yet turn over the money, but she wanted to get a look at what she was buying.

The July 5 meeting was held in the "free port" area of the Geneva airport, an area reserved for items that have not passed through Swiss customs. Faulk and Dikman arrived from Munich with the mosaics, which were stored in crates. Dikman introduced himself to Goldberg and then left; this brief exchange was the only time the two would meet. Goldberg then inspected the four mosaics. She testified that she "was in awe," and that, despite some concern about the mosaics' deteriorating condition, she wanted them "more than ever."

During the few days that Goldberg waited in Switzerland for the money to arrive from Merchants, she placed several telephone calls concerning the mosaics. She testified that she wanted to make sure the mosaics had not been reported stolen, and that no treaties would prevent her from bringing the mosaics into the United States. She called UNESCO's office in Geneva and inquired as to whether any treaties prevented "the removal of items from northern Cyprus in the mid- to late-1970s to Germany," but did not mention the mosaics. She claims also to have called, on advice from an art dealer friend of hers in New York, the International Foundation for Art Research ("IFAR"), an organization that collects information concerning stolen art. She testified that she asked IFAR whether it had any record of a claim to the mosaics, and that, when she called back later as instructed, IFAR told her it did not. Judge Noland clearly doubted the credibility of this testimony, noting, among other things, that neither Goldberg nor IFAR have any record of any such search. (A formal IFAR search involves a fee and thus generates a bill that would serve as proof that a search was performed.) Judge Noland also questioned Goldberg's testimony that she telephoned customs officials in the United States, Switzerland, Germany and Turkey. The only things of which Judge Noland was sure was that Goldberg did not contact the Republic of Cyprus or the TRNC (from one of whose lands she knew the mosaics had come); the Church of Cyprus; "Interpol," a European information-sharing network for police forces; nor "a single disinterested expert on Byzantine art."

However Goldberg occupied her time from July 5 to July 7, on the latter date the money arrived. Goldberg took the $1.2 million, reduced to $100 bills and stuffed into two satchels, and met with Faulk and Fitzgerald at the Geneva airport. As arranged, Goldberg kept $120,000 in cash and gave the remaining $1,080,000 to Faulk and Fitzgerald in return for the mosaics. Faulk and Fitzgerald in turn split the money with van Rijn, Dikman and their other cohorts as follows: $350,000 to Dikman (as per Faulk and van Rijn's prior agreement with him); $282,500 to van Rijn; $297,500 to Fitzgerald; $80,000 to Faulk; and $70,000 to another attorney in London. Along with the mosaics, Goldberg received a "General bill of sale" issued by Dikman to Goldberg and Feldman Fine Arts, Inc. The following day, July 8, 1988, Goldberg returned to the United States with her prize.

Back home in Indiana, Goldberg took what she had left of her $120,000 cut and deposited it into several of her business and personal bank accounts. After paying for the insurance and shipment of the mosaics, as well as a few unrelated art purchases, that sum amounted to approximately $70,000. Her friends and business associates in Indiana soon took quite an interest in her purchase; literally. For large sums of money, Frenzel, Goldberg's well-placed friend at Merchants, and another Indiana resident named Dr. Stewart Bick acquired from van Rijn and Fitzgerald substantial interests in the profits from any resale of the mosaics.

Peg Goldberg's efforts soon turned to just that: the resale of these valuable mosaics. She worked up sales brochures about them, and contacted several other dealers to help her find a buyer. Two of these dealers' searches led them both to Dr. Marion True of the Getty Museum in California. When told of these mosaics and their likely origin, the aptly-named Dr. True explained to the dealers that she had a working relationship with the Republic of Cyprus and that she was duty-bound to contact Cypriot officials about them. Dr. True called Dr. Vassos Karageorghis, the Director of the Republic's Department of Antiquities and one of the primary Cypriot officials involved in the worldwide search for the mosaics. Dr. Karageorghis verified that the Republic was in fact hunting for the mosaics that had been described to Dr. True, and he set in motion the investigative and legal machinery that ultimately resulted in the Republic learning that they were in Goldberg's possession in Indianapolis.

After their request for the return of the mosaics was refused by Goldberg, the Republic of Cyprus and the Church of Cyprus (collectively "Cyprus") brought this suit in the Southern District of Indiana for the recovery of the mosaics. [After a bench trial, Judge Noland awarded possession of the mosaics to theChurch of Cyprus] . . . bifurcated the possession and damages issues and held a bench trial on the former. I[I]n a detailed, thorough opinion (that occupies thirty-one pages in the Federal Supplement), Judge Noland awarded possession of the mosaics to the Church of Cyprus. Goldberg filed a timely appeal.

II. Analysis

A. Jurisdiction

Subject matter jurisdiction in this action was based on diversity of citizenship under 28 U.S.C. s 1332(a)(2), which vests jurisdiction in the federal district courts for actions of sufficient value between "citizens of a State, and foreign states or citizens or subjects thereof." Judge Noland found that the requirements of this subsection were met. [Discussion of jurisdictional issues omitted.]

B. Choice of Law

As a federal court sitting in diversity, the district court was obligated to (and did) apply the law of the state in which it sat--Indiana. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). [The court concluded that Indiana courts would apply Indiana law rather than Swiss law to this replevin action.]

C. Statute of Limitations

With great zeal, Goldberg has from the beginning of this action challenged the timeliness of Cyprus' complaint. Under Indiana's statute of limitations for replevin actions, Cyprus had six years from the time its cause of action accrued in which to sue for the recovery of the mosaics. Ind.Code s 34-1-2-1 (1982). Though the exact date of the looting of the Kanakaria Church is unknown, it is agreed that Cyprus first learned of the theft of their mosaics in November, 1979. It is also agreed that Cyprus first learned that the mosaics were in Goldberg's possession in late 1988. If Cyprus' cause of action accrued on the former date, their complaint, filed in March, 1989, was untimely. If, on the other hand, it accrued on the latter date (or at any other point after March, 1983), their complaint was timely. Thus, the dispositive determination is when did Cyprus' cause of action "accrue" within the meaning of Indiana's limitations statute.

The determination of when Cyprus' cause of action accrued involves the interpretation of Indiana authorities and their application to the facts of this case. We give substantial deference to the district court's resolution of such issues, as we assume that the district court has greater expertise in interpreting and applying the law of the state in which it sits. . . .Our review of Judge Noland's statute of limitations analysis convinces us that he has here proved true that assumption.

. . . As Judge Noland noted, it is well-established in Indiana law that it is the courts' responsibility to determine, based on the facts of each case, when the cause of action accrues. In carrying out this responsibility, Indiana courts start with the following general rule: a cause of action accrues when the plaintiff ascertains, or by due diligence could ascertain, actionable damages. Several Indiana decisions have recognized, as a corollary to this general rule, a "discovery rule" for the accrual of a cause of action; to wit, "the statute of limitations commences to run 'from the date plaintiff knew or should have discovered that she suffered an injury or impingement, and that it was caused by the product or act of another.' " (quoting Barnes, 476 N.E.2d at 87-88). . . . Although the first enunciation of the discovery rule [in 1985] was quite guarded, see Barnes, 476 N.E.2d at 87, Indiana courts have since evidenced a willingness to extend it to new types of cases and situations. . . . [citations omitted].See, e.g., Covalt v. Carey Canada, Inc., 543 N.E.2d 382 (Ind.1989); Burks, 534 N.E.2d at 1103-04; Groen v. Elkins, 551 N.E.2d 876, 879 (Ind.App.1990). See also Walters v. Owens-Corning Fiberglass Corp., 781 F.2d 570, 572 (7th Cir.1986).

Apart from but related to the discovery rule, Indiana recognizes, by both statute and case law, the doctrine of fraudulent concealment. Under this doctrine, a defendant who has by deceit or fraud prevented a potential plaintiff from learning of a cause of action cannot take advantage of his wrongdoing by raising the statute of limitations as a bar to plaintiff's action. See Ind. Code 34-1-2--9 (1982).6

Central to both the discovery rule and the doctrine of fraudulent concealment is the determination of the plaintiff's diligence in investigating the potential cause of action. See Burks, 534 F.2d at 1104 (u[U]nder discovery rule, statute begins to run when damage was "ascertained or ascertainable by due diligence"); Guy v. Schuldt, 236 Ind. 101, 138 N.E.2d 891, 896 (1956) ([and] despite fraudulent concealment, if plaintiff was not reasonably diligent in discovering fraud "the statute will run from the time discovery ought to have been made" [citations omitted]).

Applying these Indiana rules and principles to this case, and unguided by any directly analogous Indiana precedent, Judge Noland concluded that an Indiana court would find that . . . Cyprus' cause of actiondid not accrue until ] Cyprus' action was timely filed. His primary ground for so concluding was his determination that, under a discovery rule, Cyprus' cause of action did not accrue until Cyprus learned from Dr. True that the mosaics were in Goldberg's possession in Indiana. In so holding, he looked not only to Indiana cases but also to general discovery rule principles, . . . and to O'Keeffe v. Snyder, 83 N.J. 478, 416 A.2d 862 (1980), a decision of the New Jersey Supreme Court addressing the accrual of a cause of action in the context of a replevin action involving a work of art. (In O'Keeffe, the court held that artist Georgia O'Keeffe's cause of action for replevin of three paintings stolen from a gallery in 1946 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." ) Further, Judge Noland found, as a necessary precondition to the application of the discovery rule, that Cyprus exercised due diligence in searching for the mosaics. Thus, Judge Noland ruled that Cyprus was not, nor reasonably should have been, on notice as to the possessor or location of the mosaics until late 1988.

Goldberg attacks Judge Noland's discovery rule analysis on two grounds. First, she charges that in applying the discovery rule in this case Judge Noland "announced a new rule of Indiana law in conflict with established Indiana limitations principles." Not so. Judge Noland applied legal principles set out in Indiana cases, and generally accepted elsewhere, to a new situation not yet addressed by the Indiana courts, exactly what a district court sitting in diversity is obligated to do when presented with a novel issue under state law. Further, his conclusion that in this case the operative "discovery" had to include the identity of the holder of the mosaics is eminently sound. In the context of a replevin action for particular, unique and concealed works of art, a plaintiff cannot be said to have "discovered" his cause of action until he learns enough facts to form its basis, which must include the fact that the works are being held by another and who, or at least where, that "other" is. Further, we note that any "laziness" this rule might at first blush invite on the part of plaintiffs is heavily tempered by the requirement that, all the while, the plaintiff must exercise due diligence to investigate the theft and recover the works.

Second, Goldberg attacks Judge Noland's due diligence finding. Specifically, she argues that Cyprus failed to contact several organizations it should have, particularly IFAR and Interpol. She also repeats the argument she made to Judge Noland that events occurring before the end of 19837 should have started the clock ticking on Cyprus' cause of action, with particular emphasis on an article that appeared in a Turkish newspaper. We note first that the due diligence determination is, as Judge Noland noted, highly "fact- sensitive and must be decided on a case-by-case basis." . . . Although Goldberg cites some support for a de novo standard of review on this issue, we ordinarily review determinations such as this, which involve the application of law to facts, under the "clearly erroneous" standard. Further, in this case the assessment of Cyprus' diligence necessarily involves a contextual analysis of "a particular and nonrecurring set of historical events," as well as an assessment of the credibility of the various witnesses who testified as to what Cypriot officials knew and when they knew it. Thus, there is substantial support for a very deferential standard of review. Under any standard of review [of the due diligence finding], however, Judge Noland's due diligence determination must be affirmed.

The record evidence (summarized above) makes it clear that, although the Republic of Cyprus may not have contacted all the organizations Goldberg in hindsight would require, it took substantial and meaningful steps, from the time it first learned of the disappearance of the mosaics, to locate and recover them. The efforts by the Republic's officials, targeted at the likely points of sale of the mosaics, were sweeping and consistent with trade practices. Indeed, one expert, a curator from The Walters Art Gallery in Baltimore, Maryland, testified at trial that Cyprus "stands apart" in its efforts to recover stolen cultural properties. As to Goldberg's repetition here of her arguments regarding the article in the Turkish publication and the other events, the record adequately supports Judge Noland's conclusion that these events did not nor should not have put Cyprus on notice as to a possible cause of action. The article, which fingered Dikman as a man wanted in Cyprus and Turkey for smuggling artifacts and later mentioned the mosaics from the Kanakaria Church, did not reveal that Dikman might be in possession of the mosaics from the Kanakaria Church. What's more, the record reveals that, upon learning of such Turkish press reports, Cyprus redoubled its efforts at notification and recovery.

The full text of this appeal is 17 pages long. It was decided, for the purposes of this lesson, that this would be sufficient.

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