A State Supreme Court justice in Manhattan ruled yesterday that the Museum of Modern Art could return two borrowed Egon Schiele paintings to a Viennese foundation despite a continuing criminal investigation into their ownership by the Manhattan District Attorney.
In a 26-page decision that ended weeks of jitters in the museum world, at least temporarily, Justice Laura E. Drager granted the museum's motion to quash a subpoena detaining the paintings, which was issued by a grand jury at the request of the District Attorney, Robert M. Morgenthau. Mr. Morgenthau is examining charges that the paintings, confiscated from Jews by the Nazis, had made their way improperly into private collections after World War II.
Justice Drager agreed with the museum that the works were protected from seizure by a 30-year-old state law and supported the museum's contentions on other points as well. Mr. Morgenthau said he would appeal the decision, and several legal and art world experts predicted that it could be a long time before the works were returned to Austria even if the appeal was upheld.
For months, the Modern and other museums have warned that many collectors would stop lending their works to local cultural institutions if the subpoena stood.
The paintings, "Portrait of Wally" and "Dead City," were lent to the Modern by the Leopold Foundation in Vienna last fall for a huge Schiele retrospective, which closed Jan. 4. But in late December two families each claimed one of the paintings. Mr. Morgenthau began his investigation, and the grand jury issued its subpoena on Jan. 7.
Justice Drager ruled that the paintings were protected from "any kind of seizure" by the New York Arts and Cultural Affairs Law and that "the subpoena effected a seizure of the paintings."
Mr. Morgenthau's office immediately asked for a two-week stay of the ruling, which was granted. "We respectfully disagree with her legal analysis and conclusion," Mr. Morgenthau said. The District Attorney's office had argued that the law was "drenched with the language of civil actions" and did not extend protection to property in such criminal proceedings as the grand jury process.
"It is bad public policy to exempt any state property from the reach of the law," Mr. Morgenthau added, "and we do not believe that New York State should be a safe haven for stolen art." But the relief was palpable at the Modern. "This is a victory for New York, because there was a serious potential that works of art would cease to come to New York," said Glenn D. Lowry, the director. "But this ruling sends a very strong signal to our friends around the world that their anxieties about lending to museums in New York State can now be diminished."
Already, the Modern had lost the loan of two paintings that had been promised for its retrospective of Pierre Bonnard, which is to open on June 21. One work, "Gray Nude in Profile," was withdrawn specifically because of the dispute, the unidentified owner wrote in a Feb. 10 letter to John Elderfield, the show's curator. The other, "Standing Nude," was withdrawn in recent weeks by an owner who cited no reason.
Yesterday's ruling has no bearing on the merits of the families' ownership claims, which were made after The New York Times published an article outlining one of the two cases in the context of Dr. Rudolf Leopold's aggressive collecting tactics. Nor will the decision end the dispute even if it is upheld. "The grand jury is not precluded from proceeding with its investigation," Justice Drager wrote. "It simply cannot retain the paintings. But in point of fact the paintings are not needed for the investigation."
In her decision, Justice Drager also rejected the District Attorney's contention that a Federal law protecting registered artworks from seizure by law enforcement authorities pre-empted the state statute.
In the past, Mr. Morgenthau has acknowledged that he could not have acted if the Modern had applied for Federal immunity from seizure.
In its memorandum to the court, the Modern said it did not go through the burdensome process of applying for Federal protection from seizure for the Schiele exhibition largely because it believed that state law offered broader protection.
The Consul General of Austria in New York, Harald Miltner, was in court yesterday to hear the ruling. "We are very happy that this decision was taken," he said, though he declined to speculate on when the Leopold Foundation, which is financed by the Austrian Government, might get the paintings back. And Stephen M. Harnik, the New York lawyer representing the Leopold Foundation, said, "This is only the first step, really." Both expect long court proceedings.
Indeed, it might be years before the Leopold Foundation gets "Portrait of Wally" and "Dead City" back.
When the claims surfaced, the United States Customs Service also started an investigation. It could, some lawyers said, try to seize the paintings as stolen property, arguing that its agents, with Federal authority, could supersede state law. But that, no doubt, would also be challenged.
Photos: Large detail of "Portrait of Wally," one of two Egon Schiele paintings involved in an ownership dispute between a Viennese foundation and two families in New York. (Museum of Modern Art)(pg. E1); "Dead City," a Schiele work whose ownership is disputed. (Associated Press)(pg. E7)