News:

New York’s Museum of Modern Art and the foundation that runs the Solomon R. Guggenheim Museum can keep two Picassos, after heirs of the paintings’ Weimar-era owner settled a suit to repossess them.

The settlement was reached yesterday and announced as jury selection was set to begin in the suit that the three heirs filed against the museums. As a result, “Boy Leading a Horse” (1905 to 1906) will remain at the Museum of Modern Art, or MoMA, and “Le Moulin de la Galette” (1900) stays at the Guggenheim.

Terms of the settlement weren’t disclosed. Both paintings had been in the private collection of Paul von Mendelssohn-Bartholdy, a German Jewish banker, who died in 1935. The plaintiffs claimed in the suit that the paintings were sold under duress and should be returned to the family.

The museums praised the agreement.

“The continued ownership of these masterpieces by the museums ensures that members of the public -- including millions of visitors, students, scholars and others -- will continue to enjoy them for generations to come,” said a statement attributed to MoMA Director Glenn Lowry and Richard Armstrong, who became the Guggenheim’s director in November.

According to court papers, von Mendelssohn-Bartholdy transferred the paintings to his second wife, Elsa. The plaintiffs said the transfer wasn’t legitimate and therefore the paintings should stay in the family because von Mendelssohn-Bartholdy did so for fear of losing them to the Nazis.

Neared Death

The “alleged 1927 gift was in fact merely a pretext, conceived by Paul as he neared death in 1935 in response to anti- Semetic measures taken by the then-ascendant Nazi government, and was designed to protect the paintings by putting them in the name of Elsa, who was considered ‘Aryan,’” according to a summary of the plaintiffs’ case, written by Judge Jed Rakoff, in an earlier opinion.

The museums argued the paintings were a 1927 wedding gift.

After being exhibited in Buenos Aires in 1934, the paintings were sold to Galerie Thannhauser, with branches in Berlin and Lucerne, according to court papers filed by the museums. “Boy Leading a Horse” was sold to Columbia Broadcasting System founder William Paley in 1936. “Le Moulin” remained in the collection of Justin Thannhauser, a Jewish dealer who fled Germany in 1937. Each man bequeathed his painting to the museums.

John J. Byrne Jr., a Washington-based lawyer for Julius Schoeps, one of the plaintiffs and a professor at the University of Potsdam, didn’t return an e-mail from Bloomberg News seeking comment. Schoeps’s grandmother was a sister of von Mendelssohn- Bartholdy.

To contact the reporter on the story: Philip Boroff in New York at pboroff@bloomberg.net;