Geoffrey Hoguet, an American, is suing the Austrian authorities for control of the trust, which he claims is worth up to €110m (£98m).
Now a court has backed a claim of Hoguet's legal team that the city of Vienna's management of the trust represents a conflict of interest, ruling that an independent “collision curator” be appointed to represent the charity in legal proceedings.
“The decision is an important first stage win in our legal battle with the city of Vienna to correct the course of Nazi-era injustices endured until today,” Hoguet said.
“In doing so the court recognises the improprieties conducted by the city of Vienna since the Nazi usurpation of that foundation in 1938.”
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The Nathaniel Freiherr von Rothschild foundation was established in Vienna in 1907 by Albert Freiherr von Rothschild, fulfilling the wish of his brother Nathaniel that a trust be set up in his name to treat patients with mental illness.
By the time it was seized by the Nazis in 1938 it had a large endowment and two clinics, the Maria-Theresien-Schlössel, which was houses in an 18th century palace, and the then newly built Nervenheilanstalt Rosenhüge.
The clinics were seized under the “aryanisation” process when the Rothschild family, one of Europe's most prominent Jewish families, fled the country.
In 1956, the Endowment was re-established in accordance with its old charter but with the City of Vienna entrusted itself to administer the endowment´s assets.
In 2002, the city sold the palace housing the Maria-Theresien-Schlössel for a price Hoguet argues was beneath its market value.
The foundation now leases its one remaining clinic to a public hospital for a nominal sum, with all references to the founding family stripped from the building.
“I went back in February and walked around the campus [of the hospital], and there wasn’t one reference to the family’s name,” Hoguet told The Guardian newspaper.
On the website set up by Hoguet's campaign, he claims he is not interested in making gains for himself personally.
“In challenging the City of Vienna to address this grevious wrong, we seek no personal profit,” he said.
“This is not about taking back personally what was stolen; this is about having the Endowment serve its original purpose: to support those Austrians with psychological challenges with the professional attention they need.”