In early January 1998, the outlook seemed dire for two families trying to regain two Egon Schiele paintings that had been confiscated from their relatives by the Nazis and later wound up at an Austrian foundation. The Museum of Modern Art, which had borrowed the works for an exhibition, had turned down pleas that it hold on to the paintings while the families contested ownership. Instead, the museum said, the works would go back to the Leopold Foundation in Vienna on "Jan. 8 or shortly thereafter."
Then, on the afternoon on Jan. 7, the Manhattan District Attorney, Robert M. Morgenthau, rode to the rescue, obtaining a grand jury subpoena keeping the works in the city pending his criminal investigation into their ownership.
Now, 20 months later, the only movement on the ownership question has come in the last three weeks, after New York State's highest court invalidated the subpoena and a United States Attorney and the United States Customs Service started a civil forfeiture proceeding to determine who owns "Portrait of Wally." (The other painting, "Dead City," has a different history and has been returned to Vienna.)
Now, too, Mr. Morgenthau's strategy is being questioned. As he moved, Federal officials were also preparing legal action to keep "Wally" here, and many lawyers believe that the chances of determining true ownership expeditiously are far greater under Federal law.
"The United States has the power to forfeit the painting, which seems to be more to the point," Thomas Kline, a Washington lawyer who has represented other victims of Nazi looting, "but Federal-state coordination is always a problem."
In the forfeiture process, the United States invites potential claimants to prove their interests, leaving a Federal judge to adjudicate. By contrast, to prosecute a criminal case with "Wally" as evidence, Mr. Morgenthau first had to get around New York's 30-year-old Arts and Cultural Affairs Law, which prevents any seizure of art lent to museums.
Lawrence M. Kaye, the lawyer for the heirs of Lea Bondi Jaray, a Jewish art dealer who was forced to leave "Wally" behind when she fled Vienna in 1939, said: "I would have preferred being at this point 20 months ago, too, but he moved first. And I also know that people say these organizations compete."
Other lawyers, nodding in agreement, are asking if the politics of championing a popular cause and Mr. Morgenthau's well-known rivalry with the United States Attorney's office in Manhattan, now led by Mary Jo White, led him to leap into a case. Why else, they say, would he try to test the applicability of the New York law instead of allowing a tried-and-true civil procedure to resolve the dispute?
In a telephone interview, Mr. Morgenthau said he did not believe that Federal officials were ready to act when he did, and he called the notion that he wanted to pre-empt Ms. White "nonsense." He said he "applauded what the Southern District did" and offered cooperation.
Yet the state's Court of Appeals, which on Sept. 21 ruled 6 to 1 against Mr. Morgenthau, implicitly faulted his case. During oral arguments on Aug. 24, the justices inquired about his inquiry and its lack of progress.
Their ruling also indicated displeasure, noting that "an indictment has not been forthcoming" despite the passage of time. This weighed heavily on the court in its determination that the subpoena was tantamount to a seizure. As one lawyer involved in the case who would not speak for attribution said, "They were not happy with what the D.A. had not done and with the length of time it was taking him not to do it."
Mr. Morgenthau conceded that the criminal investigation into "Wally's" ownership stopped when the Modern moved to quash the subpoena on Jan. 22, 1998, and that he therefore had no plan to seek an indictment soon. "We felt we had to wait until we found out the court's interpretation of the law," he said.
Mr. Morgenthau declined to comment on the investigation. But he blamed much of the delay on the courts. While the New York State Supreme Court decided against Mr. Morgenthau in May 1998, it was not until last March that the Appellate Division of the State Supreme Court reversed the ruling. That sent the case to the state's highest court, which had the final word last month.
Still, lawyers who handle art claims said they never understood where the subpoena would lead or whom the District Attorney planned to indict. The Nazi who seized the painting from Mrs. Bondi is long dead, as are the officials at the Austrian National Gallery who took it and traded it to Rudolf Leopold, now of the Leopold Foundation. Dr. Leopold, now in his 70's, lives in Vienna, and if the case were tried under Austrian law as expected, the statute of limitations would absolve him.
"There were challenges ahead for Morgenthau, even if he had won the fight with MOMA," said Willi Korte, a stolen-art investigator who has been retained by the Bondi family. "I think the U.S. Attorney stayed away from the criminal aspects of this case in order not to pick a fight that is extremely difficult to win. Even if there were an indictment, then what? You'd have to spend an enormous amount of money to win this."
The loss of time, Mr. Morgenthau's critics contend, was unnecessary because other efforts to keep "Wally" in New York were proceeding as its shipment loomed. The Bondis, their representatives and various Jewish and legal organizations had contacted the State Department, the Justice Department, Ms. White's office, Customs, the offices of Sen. Alfonse M. D'Amato and Gov. George E. Pataki and others they thought could help.
Customs and Ms. White seemed poised to act. "It was my understanding, based on communications that I had on Jan. 7, 1998, with Customs, the U.S. Attorney's office and Sen. D'Amato's office, that they were ready to seize 'Wally' that day or the day thereafter," Mr. Korte said. "Whether they could have withstood the heat generated, I don't know."
The State Department, wary of an international contretemps, was reluctant to intervene, but there was still at least 24 hours for the agencies to work out their differences.
And what would have happened then appears to be happening now. Shipment of the painting has been halted by a seizure warrant, the case has been assigned to a judge, the Government has invited interested parties to claim "Wally," and the Leopold Foundation and the heirs of Mrs. Bondi are doing so.
Meanwhile, on Sept. 24, the Bondi family sued the Leopold Foundation in Federal District Court in Manhattan for the painting. The suit was assigned to the same judge as the Federal case, Michael B. Mukasey, and the cases may well be joined in court. Court delays are common, of course, but the process, for the first time, is in motion.
Photos: Rivalry and an art dispute: Mary Jo White, Robert M. Morgenthau. The New York Times)