Of Koons, Twombly, Perelman and Gagosian: Lessons to be Learned

By Jessica M. Curley (Part I) and Daniel Kokhba (Part II)

Part I: Places, lights, action

The lack of transparency in the art world can sometimes cause unease and distrust among transacting parties, as can be seen in the protracted litigation between billionaire financier Ronald O. Perelman and renowned art dealer Larry Gagosian. Former friends, who once traveled in the same social circles, and had even co-owned a restaurant together, found themselves entangled in an ongoing legal battle stemming from an exchange/sale transaction involving a Jeff Koons sculpture and a Cy Twombly painting.

The initial dispute dates back to April of 2011 when Perelman first expressed interest in the Cy Twombly painting titled “Leaving Paphos Ringed with Waves” (the “Twombly painting”), which at the time had been available for sale at Gagosian’s Gallery. Court papers filed in 2012 stated that Gagosian, whose clients include Steve Cohen and Francois Pinault, quoted a price of $8 million for the painting. Shortly thereafter, Perelman returned to the gallery to purchase the work only to find that it had already been sold to another notable art collector Jose Mugrabi, famous for his extensive Warhol collection. According to Perelman, a few months following the sale, Gagosian advised him that the Twombly painting was back on the market, this time at the increased price of $11.5 million. Even after negotiating a $1 million discount, paying a final price of $10.5 million, Perelman still felt as though he was being defrauded by the forgoing series of transactions, so he proceeded to file suit.

According to the amended complaint, Perelman asserted several legal causes of action against Gagosian including breach of contract, breach of fiduciary duty, fraud, breach of the covenant of good faith and fair dealing, unjust enrichment, and deceptive business practices under section 349 of the General Business Law. Perelman alleged that Gagosian conspired with the Mugrabi family, to take advantage of him by upwardly manipulating the market price of the Twombly painting, resulting in a second sale and commission for Gagosian and a quick profit for the Mugrabis. Perelman also accused Gagosian of undervaluing artworks, including Koon’s “Popeye” sculpture and multiple Willem de Kooning paintings that he exchanged as partial satisfaction of the $10.5 million purchase price of the Twombly.

The attorney representing Gagosian, Matthew S. Dontzin, of Dontzin Nagy & Fleissig LLP, stated in court that Perelman’s business entities, including MacAndrews & Forbes Group LLC and MAFG Art Fund, through which he acquired the art, are “sophisticated” professional art investment firms that had a “heightened duty” to engage in due diligence in selecting artworks to acquire. Typically, professional art investment firms specialize in generating returns by strategic purchase and sale of artworks, and have a fiduciary duty toward their investors to secure returns according to best practices and efforts. The attorney for Perelman, Marc Kasowitz, partner at Kasowitz Benson Torres & Friedman LLP, countered Dontzin’s claim by asserting that Perelman is not of the same “level of expertise and skill” as Gagosian, who is “probably the world’s leading and most powerful art dealer,” and thus has relied on Gagosian for over twenty years for advice on investing in art. Kasowitz went on to emphasize that Gagosian not only has “unique knowledge of the art markets,” but that he “makes those markets.”

In his ongoing quest to uncover how other deals involving Gagosian have been executed, Perelman sought unprecedented access to transaction details and even subpoenaed numerous high profile figures and institutions in the art world including members of the Mugrabi family, Gagosian himself, and Sothebys and Philips auction houses. He even apparently hired a former FBI agent experienced in the art business to interview other major collectors, dealers and artists.

Perelman has remarked that art is “a beautiful thing” and has stated that the goal of his litigious activity is to expose the “dirty” side of the otherwise prestigious world of buying and selling fine art. In response, Gagosian’s lawyers stated that Perelman was motivated by a different agenda, mainly “harassing Gagosian and disparaging the gallery”.

In 2013, presiding judge Barbara R. Kapnick suggested that the parties “get themselves together at a cocktail party in the Hamptons” and work their issues out amicably, adding that “this is a crazy case to have going on here in court.” However, the former friends chose not to settle.

Part II: Bright Line on Control and Dominance (Arm’s Length Precedent)

The December 4, 2014 decision by the Appellate Division, First Department in the high profile action entitled MAFG Art Fund, LLC et al. v. Larry Gagosian, et al offers valuable jewels of insight into the art industry and beyond on such topics as fiduciary obligation, investigation, statements about value, and contracts – constant themes underlying many art transactions and attendant disputes. The case included breach of fiduciary duty and fraud claims filed by Plaintiff-buyer against Gallery-seller in connection with a purchase agreement.

Fiduciary Obligation

A fiduciary obligation owed to seller by the dealer is often mistakenly assumed and expected in art transactions. In MAFG, the Court did not find a fiduciary obligation between Plaintiff and the Defendant gallery. “The parties operated at arm’s length when they negotiated for art works. Thus, fiduciary obligations did not exist between them. Moreover, even read liberally, the complaint does not establish that the defendants exercised control and dominance over Plaintiffs – limited liability companies who, by their own description, frequently purchased, sold and exchanged works as investments. Gagosian had no duty vis-à-vis Perelman, an active player in the art market. Accordingly, parties to this and similar transaction should not assume a fiduciary duty, especially when both sides are sophisticated participants in the art market.


The false expectation of fiduciary obligation can contribute to sloppy due diligence and lack of investigation. The Court in dismissing the fraud claim recognized the absence of such investigation. The lesson here is to conduct independent investigation before closing on a transaction. Meaning, if Perelman was uncertain of the fair market price for the works he was exchanging for the Twombly or if he did not believe the Twombly offered to him was priced fairly, he had a duty to conduct independent research into the prices.

Statements of value

The Court interestingly notes, “[a]s to the claim that defendants misrepresented the value of certain art works, statements about value of art constitute [a] ‘non-actionable opinion that provide[s] no basis for a fraud claim’”. (Internal citation omitted).   This pointed sentence is a warning to buyers and their advisors and may impact the viability of similar future fraud claims predicated on misrepresentations relating to value.


In MAFG, Plaintiff claimed that Defendants breached the covenant of good faith and fair dealings by entering into a subsequent agreement that decreased Defendants’ incentive to be involved in resales thereby adversely affecting Plaintiff. The Court refused to interpret the purchase agreement in this manner because subsequent agreement and resale were not covered in the agreement. Granted, many art transactions are regrettably entirely undocumented at great risk to the parties involved. However, even when the parties cross the threshold of handshake to written agreement, they should ensure to document in sufficient detail all provisions, contingencies and expectations.


Friendship is not a defense and should not be used or relied upon while making business decisions involving any sums of money, especially millions of dollars. Careful drafting, review offering plans, negotiation, contemplations and incorporation of expectations and contingencies, and coordination of due diligence by counsel seem like an implicit lesson from the resulting litigation and decision. A dose of preventive medicine may help reduce the risk of litigation. Hamptons may help too.


About the Authors:

Jessica M. Curley is a post-graduate fellow at Center for Art Law, who recently graduate from the Benjamin N. Cardozo School of Law, admission to the NY State Bar pending. Curley is pursuing her interest in art law and financial regulation. She may be reached at jessicamcurley@gmail.com or 858.822.9410.

Daniel S. Kokhba, Esq. is a Partner at Kantor Davidoff, Mandelker, Twomey, Gallanty & Olenick, P.C. and focuses his practice on civil litigation, art law and employment law. He may be reached at Kokhba@kantordavidoff.com or 212-682-8383

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Rockwell-not Case Review: Knispel v. Gallery 63 Antiques

By Chris Michaels*
Screen shot 2015-01-13 at 1.53.22 PM

Yelpers report… Gallery 63 Antiques is no more.

How much would you pay for a piece of classic Americana? According to a complaint filed on 23 December 2014, twenty years earlier, in 1994 Barry and Isabel Knispel were willing to pay $347,437 for an original Norman Rockwell oil painting titled “Mending His Ways.” In early 2013, however, the Knispels learned that the oil they purchased and thought was by Rockwell was, in fact, painted by Harold Anderson, an American painter and illustrator, known for his Christian-themed images.

Pursuant to the complaint, in 1994 the Knispels, New Jersey-based art collectors, were solicited by a New York City art gallery, Gallery 63, to purchase several paintings, one of which was represented to be an original Norman Rockwell painting. The Knispels paid the purchase price of $347,437 and, at the time of sale, Gallery 63 arranged to have the painting appraised by Casper Fine Arts & Appraisals to authenticate and value the painting. Laurence Casper, now deceased, provided a written appraisal of the painting, which confirmed its authenticity as an original Rockwell, although it noted that the painting had not previously been recorded as a Rockwell.

The Knispels, relying on Casper’s appraisal and Gallery 63’s guarantee that the painting was an original Rockwell, completed their purchase. Ever since the purchase, the Knispels have displayed the painting in their home and have maintained insurance coverage for the retail replacement of the painting, which was valued at $1,750,000.

CM jan2015

Harold Anderson’s “Patching Pants” as displayed in a 1940 MobilOil advertisement.

In 2013, insurance company which provided the insurance policy for the Knispels’ painting, required that paintings in the collection be examined to ensure authenticity and value. It was not indicated in the Complaint why an appraisal was needed at this time or why one was not conducted earlier. The New York Fine Art Appraisers examined the painting and determined that it was an illustration by Harold Anderson for a MobilOil advertisement, titled “Patching Pants.” With the new attribution, and to the understandable dismay of the Knispels, the painting was thus valued at only $20,000.

The complaint filed by the Knispels avers that the defendants should have discovered that the painting was not an original Rockwell because the forgery was “open and obvious” and that the defendants breached their obligations under the sale contract by failing to deliver an original Rockwell. The complaint also alleges that the defendants knowingly and deliberately provided the Knispels with false information or were grossly negligent in their appraisal abilities.

In this case, Plaintiffs potentially face a statute of limitations defense based on the fact that approximately 20 years have passed between purchase and identification of the misattribution, as well as claims of forgery. The complaint notes that the forged signature was “open and obvious” to appraisers, so this raises the question of why the forgery went unnoticed for so long. As an aside, this issue should be viewed as a warning to collectors who have not had their collections appraised recently. Not only will retail replacement values likely change over the course of 20 years, getting an independent appraisal of a collection allows sophisticated collectors the chance to pro-actively address any issues that may arise.

Plaintiffs are represented by Donald A. Ottanuick, Esq., of Cole, Schotz, Meisel, Forman & Leonard, P.A. of Hackensack, New Jersey. Defendants may still be looking for council. It appears that they being named as a defendant previously, also in a case dealing with a break of warranty and misattribution.


  • Complaint, in Knispel v. Gallery 63 Antiques, et al, Sup. Ct. N.J., (Filed on Dec. 23, 2014).
  • Levin v. Gallery 63 Antiques Corp., No. 04-cv-1504 (KMK) (S.D.N.Y., Sept. 26, 2006).

About the Author: Chris Michaels is a litigation attorney in the Philadelphia office of the Atlanta, GA-based law firm, Cruser & Mitchell, LLP, where he actively pursues his interest in the field of art law. He may be reached at (518) 421-7238, chriswmichaels@gmail.com, or on Twitter @CMichaelsartlaw.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Wilfredo Lam Exhibit (MA)

Cuba on My Mind: Legal Implications of Accessing Cuban Art

by Lesley Sotolongo, Esq.Screen Shot 2015-01-09 at 9.10.55 AM

Following the rise to power of Fidel Castro in 1959, a declining economy made preserving Cuba’s cultural property and accessing contemporary artworks increasingly difficult. Because of the Communist regime, the U.S. embargo was ratified in 1962 causing Cuba’s cultural heritage to suffer and art works to be illegally exported into the U.S.  Furthermore, the embargo prohibited U.S. museums from exchanging information relating to its conservation efforts with the Cuban government. Despite the high demand for Cuban fine art worldwide, contemporary Cuban painters were not allowed to sell their paintings to the U.S. or to work with auction houses such as Christie’s or Sotheby’s. In fact, Cuban artists have basically no freedom of speech rights evidenced by recent arrests of more than a dozen artists and activists prior to their participation in an open-mic performance planned in Havana’s Plaza de la Revolucion. (Read about Cuban activists arrests in December 2014). Thus, access to Cuban artworks in the U.S. has been significantly curtailed due to the bureaucratic obstacles for both Cubans and Americans. Recently, President Obama has taken executive action to restore diplomatic ties with Cuba and has called on Congress to formally overturn its sanctions, effectively ending the 55 year embargo. Until Congress takes further action the embargo is still in effect.

Wilfredo Lam Exhibit (MA)Still, there have been some Cuban art exhibitions in the U.S. Last year, the McMullen Museum of Art at Boston College organized an exhibit titled “Wilfredo Lam: Imagining New Worlds” with works by this important Cuban artist contextualized as an international figure in 20th-century art history. Furthermore, Abel Barroso, Jorge López Pardo, J. Roberto Diago, Meira Marrero and José Toirac are the headliners of “Permutations: Contemporary Cuban Art at Pan American Art Projects” in Miami, FL. The show reflects on the various strategies that the artists use to comment on social and political realities in Cuba as well as in a broader global context.

In fact, Cuban pieces are increasingly sought out by collectors, fueling illegal exports of their works from Cuba. According to David D’Arcy writing for The Art Newspaper, a missing Havana painting discovered in a Miami art gallery last year increased the toll of works stolen from Cuba’s National Museum of Fine Art in Havana to 95 works. The theft of Eduardo Abela’s painting, Carnaval Infantil, was originally housed at the Museum of Fine Arts in Havana. Cuban officials from the National Council of Cultural Heritage stated that the works were cut directly from their frames while in storage, making it difficult to detect the theft. The statement made by the Cuban government indicated a willingness to work with proper authorities inside or outside of Cuba in order to alert museums, galleries, auction houses and others of similar thefts. This case is significant because art theft is relatively rare in Cuba given that museums are tightly guarded and artwork is usually inspected by the Cuban military officers before it leaves the country. The Cuban government has become increasingly aware of this problem and is anxious to find a solution to reclaim its valuable works. However, Cuba’s suffering economy and current laws in the U.S. make this a difficult task.

One legal exception makes it feasible for artworks to be exported from Cuba. Marco A. Gonzalez, Jr., Esq., a partner at Nicoll, Davis, & Spinella LLP, sat down with Center for Art Law to discuss some relevant U.S. law and the ongoing effects of the embargo. Gonzalez explained a little-known exception to the U.S. embargo for cultural assets. Under the Cuban Assets Control Regulations § 515.206(a) information and informational materials are exempt types of transactions stating in part,

“the importation from any country and the exportation to any country of information or informational materials as defined in § 515.332, whether commercial or otherwise, regardless of format or medium of transmission, are exempt from the prohibitions and regulations of this part except for payments owed to Cuba for telecommunications services between Cuba and the United States.”  31 C.F.R. § 515.206(a) (West 2013).

Under § 515.332, the term information and informational materials includes, (1) Publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, news wire feeds, and other information and informational articles. Specifically, artworks must be classified under Chapter subheading 9701, 9702, or 9703 of the Harmonized Tariff Schedule of the United States. Unlike cigars or rum, which are considered commercial products, the U.S. government classifies Cuban artworks as cultural assets, and thus it is legal for Americans to bring artworks that are included under this law into the U.S. However, this is not always a great idea because the crime of counterfeiting of works and falsifying authentication has become a problem in Cuba. Thus, travelers should be aware of the possibility that they might not be getting what they bargained for.

Since 2003, traveling to Cuba from the U.S. has been highly restricted and now President Obama wishes to ease those restrictions. Previously, only religious, educational, and cultural groups could legally travel to Cuba, and with specific permission from the U.S. State Department. Recently, there were several attempts in the 112th Congress aimed at rolling back the Obama Administration’s actions easing restrictions on travel and remittances, but none of these were approved. Several legislative initiatives were also introduced that would have further eased or lifted such restrictions altogether, but no action was taken on these measures.

Nevertheless, Americans still cannot simply book a flight and head to Cuba. In order to travel to Cuba the traveler must book the trip with a Cuban travel agency that has an official license from the U.S. State Department. While the tour may include stops at museums or historic sites, purely recreational activities such as visiting the gorgeous beaches are prohibited from tour itineraries. Thus, travel and bringing home artwork is possible with the exercise of caution.

Whether exported illegally or not, the fact is that Cuban art remains coveted despite the trade embargo that might very well be overturned in the near future. Thus, the art world awaits the feasibility of obtaining works created by Cuban artists not only to increase accessibility to Cuban cultural production in the U.S., but also to allow for repatriation of many stolen and misplaced works.


Cuban Assets Control Regulations, § 515.

D’Arcy, David, “Stolen paintings from Havana turn up in Miami,” The ArtNewspaper (Mar. 2, 2014 ) available at http://goo.gl/R4wM73

About the Author: Lesley Sotolongo is an intellectual property attorney. She may be reached at Lesley.Sotolongo@law.cardozo.yu.edu.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

The Times They Are a-Changin’– NYU Art Law Day’s Preview of Legal Developments

*by Hanoch Sheps, Esq.

Once a year, legal practitioners and fine art appraisers descend upon New York to attend the Art Law Day conference. * Always a high point of the events calendar, the NYU School of Professional Studies along with the Appraisers Association of America prepare a cutting-edge conference on legal issues facing the fine arts field. This year was no exception. The panels presented a preview of highly anticipated developments in various art law fields. There were updates on proposed legislation at the State and Federal levels ranging from a national droit de suite to expert liability legislation to protect art authenticators. Experts from the governmental and private sectors also spoke about ongoing efforts to curb the import, sale and trade of items made from endangered species material. Finally, panelists revisited the saga of the so-called Gurlitt trove and discussed what fate awaits the vast assemblage of art. Here are some highlights:

Congressman Jerrold L. Nadler (D-N.Y.) speaks on the American Royalties Too Act of 2014 – HR 4103

The Droit de Suiteit is a household phrase in international artistic communities (and amongst signatories to the Berne Convention Article 14ter that officially recognized this right), but remains a foreign concept amongst North American notions of property and ownership.* Roughly translated as an “artist resale royalty”, the right, in theory and effect, would allow artists to recoup a fraction of the often-exponential increase in the value of their art throughout their careers. Congressman Jerrold L. Nadler (D-N.Y.) spoke about efforts in both houses of Congress to introduce the royalty at the Federal level with the enactment of the American Royalties Too Act of 2014. Congressman Nadler conceded that the recent congressional elections will undoubtedly affect the legislative agenda, but he remains positive about the likelihood for bi-partisan efforts in what he calls the “Intellectual Property arena”. He cites as support a recent report issued by the U.S. Copyright Office in favor of the royalty, and looks at the positive feedback from similar programs in the United Kingdom and elsewhere.

For the congressman, the right is about “fundamental fairness,” and trying to “correct an injustice” for visual artists. For others, the royalty would overly complicate transactions and compromise the privacy of a traditionally opaque market. Congressman Nadler noted that the larger auction houses, particularly Sotheby’s and Christie’s, are currently expanding their lobbying efforts to prevent the enactment of this legislation. As written, the bill places a significant portion of the responsibility of collecting the royalty on auction houses.

The most recent action on the bill in the House of Representatives was the bill’s referral to the Subcommittee on Courts, Intellectual Property, and the Internet. Congressman Nadler is now the Ranking Minority Member of that Committee, and is a sponsor of the legislation.

It is noteworthy that the proposed Federal legislation is not the first effort made to provide for the right in the United States. California enacted the California Resale Royalty Act (“CRRA”) in 1976, although ultimately struck down by the U.S. District Court in Los Angeles in 2012 as unconstitutional. However, the Ninth Circuit recently decided to review the two cases that form the basis of this conflict en banc (i.e., a full panel of Ninth Circuit judges). For a more complete analysis of the California cases, we refer you to the excellent coverage of the Art Law ReportFull Ninth Circuit to Review California Resale Royalty Act En Banc.

Congress has been eager to overhaul the copyright system to adapt it to current market realities for years. If that comes to fruition, it is unclear whether the resale royalty legislation would take a back seat – not to mention what effect that will have on the Ninth Circuit cases – or whether some crafty maneuvering could keep the royalty in the conversation.

*The United States is a signatory to the Berne Convention, but has not adopted the provision specific to the droit de suite.

The Fight for Endangered Species, Identifying the Combatants

On one side, you have Thomas Berkman, Deputy Counsel at the New York State Department of Environmental Conservation, and Craig Hoover, Chief at the Wildlife Trade and Conservation Branch of the U.S. Fish and Wildlife Service. They represent a movement within the Federal and State governments to curb, if not bring to a halt to, the sale of goods made from endangered wildlife parts. On the other, you have Michael McCullough, a Partner at Pearlstein & McCullough LLP, promoting the interests of the private sector, namely antiquities dealers, appraisers and collectors in preserving the endangered 600 million dollar annual trade in antiquities. In the center is the search for a middle ground between the promulgated rules and trade regulations and a market that has historically had legitimate means to trade in antiquities containing wildlife material.

At times, government regulators favor what some would call “ambiguous” and “over-inclusive” rules to limit fraudulent misrepresentations on customs forms. One example is the outright ban on the trade of mammoth material, fearing that traders would import elephant and rhinoceros ivory under false identification. The source of that problem is the difficulty in differentiating between certain animal species without intensive scientific analysis. The government chose to address this problem by establishing over-inclusive definitions in bans to curb illicit sales. In practice, however, appraisers in the audience were clearly frustrated in trying to understand how the government implements the laws – mammoths have been extinct for centuries, yet to curtail elephant ivory imports, the government has prevented trading in antiquities with mammoth material outright. This is but one example of an imperfect system, both parties with admirable goals, but no immediately discernable and practical solution.

Gurlitt – To Bern or not To Bern, That is Not the Only Question

The story of Cornellius Gurlitt has captivated the art world for over a year now, but remains in a metaphorical holding pattern on the approach to any discernable resolution. Christopher A. Marinello, Director and Founder of Art Recovery International Ltd., moderated a panel of experts consumed with this saga since the German newspaper Focus broke news of a trove of potentially Nazi-looted artworks. The story personally resonates with Marianne Rosenberg, an attorney and granddaughter of Paul Rosenberg, the renowned French gallery owner from whom the Nazis looted a significant amount of artworks.

Mr. Marinello and Ms. Rosenberg discussed the difficulties of recouping any of the works within the trove identified as part of the Rosenberg collection. The sudden death of Mr. Gurlitt in May and the announcement of the Kunstmuseum Bern in Switzerland as his sole heir stymied any progress made in negotiating the return of the works. The world waits to hear if Bern will accept the bequest, while Gurlitt’s heirs wait to make their move if the museum denies it (see update below). Further complicating matters is the recent revelation that the taskforce charged with discerning the provenance of most of the artworks in the trove will not meet its deadline.

Update since the conference: The Kunstmuseum Bern accepted the bequest and vowed to help with the restitution efforts.

Detroit Bankruptcy Conclusion Finally Provides Some Closure

At last, a panel with some closure. The story of the Detroit Institute of Arts (“DIA”) demonstrates that in the midst of Detroit’s acrimonious bankruptcy hearings, success stories did in fact emerge. Samuel Sachs II, Director of the Detroit Institute of Arts from 1985-1997, took the audience on a journey through some of the museum’s tumultuous history. His story led to the present, which saw the potential sale of portions of the DIA collection to satisfy the city’s creditors. Thankfully, the museum did not have to sell any works.

Serendipitously, on the morning of the panel, the presiding judge announced the striking of a “Grand Bargain” wherein the parties have permanently removed the entirety of the collection from this and any future financial dilemma of the City. In his opinion, Judge Rhodes stated, “[t]o sell the DIA art would be to forfeit Detroit’s future.” Richard Levin, Partner at Cravath, Swaine & Moore LLP, elaborated on Judge Rhodes’ comment to say that because of this decision, a precedent now exists to secure the future of similarly situated art collections. DIA has indeed taught everyone a valuable lesson – where an art collection is inextricably tied to a municipality, place the collection in a trust to protect it from the rights of the city’s creditors.

We all await to see what a new year, a new congress, and the Kunstmuseum’s refreshing outlook on restitution holds for lovers of art everywhere.

*We take this opportunity to thank the Center for Art Law for making attendance for some of its contributors possible.

*About the Author

Hanoch Sheps, Esq., is an attorney in New York. He may be reached at Hanoch.sheps2@gmail.com.



This and all articles are intended as general information, not legal advice, and offer no substitute for seeking representation

Spotlight on Washington Area Lawyers for the Arts’ Creative Entrepreneurship Series

By Elena Kravtsoff, Esq.*

This year, Washington Area Lawyers for the Arts (WALA) held its annual autumn Creative Entrepreneurship Series from October 2nd to November 6th. Each week volunteer attorneys lectured on topics relevant to artists who are interested in commercializing their work: business formation, funding and leases, contracts and licensing, tax strategies, negotiation skills, and intellectual property, specifically copyrights and trademarks.

Vance “Head-Roc” Levy, WALA’s Arts Ambassador, and Maggie Gladstone, the organization’s Legal Services Director, explain that WALA saw the need for “a comprehensive ‘toolbox’ series of workshops” to add to the organization’s popular monthly general workshops, and so they implemented the Creative Entrepreneurship Series, which is now in its fourth year. Mr. Levy and Ms. Gladstone say that the series allows entrepreneurial creatives to “[e]xplore the basics of forming a business for [their] creative endeavors, from deciding whether to incorporate as a non-profit or for-profit entity, to understanding copyrights and trademarks, to contract and negotiation skills, and finally to taxes and leases.”

This year, Cynthia Gayton, founder of the Arlington-based law firm Gayton Law, presented the workshop on contracts and licensing. Ms. Gayton is a long time WALA volunteer attorney who got involved with the organization in 1996 at the recommendation of her intellectual property professor. She started by writing articles and case summaries for WALA’s newsletter, which evolved into presenting seminars. Ms. Gayton says that she has enjoyed the “different arts-related venues for the seminars,” and, that since she started presenting, she has found “the audience [] better equipped/knowledgeable about the legal issues they face.”

Brian Frankel of Washington D.C.’s Brian Frankel Law Firm, who was recently elected to the WALA Board of Directors, presented a workshop on funding and leases. Mr. Frankel says that the Creative Entrepreneurship Series “is a valuable and well attended part of the D.C. creative scene.” Mr. Frankel reports that he chose to present because he is able to speak with participants about a wide range of issues that he is interested in and because he “greatly enjoy[s] the questions and directions of conversation.” Mr. Frankel says that going in, he expected “good conversation, respectful and passionate members, diverse backgrounds, diverse interests.” His objective was to help clarify some issues for the attendees “so they could focus more on creating.”

Mr. Frankel says that he has seen the organization and promotion leading up to the events improve and points out greater attendance by law students who are trying to get a sense of the interdisciplinarity of the arts and law by coming to the workshops. Like Ms. Gayton, Mr. Frankel notes that the workshop attendees come more prepared and well informed, “which makes for a richer conversation on the nuanced issues of how law may apply.”

Benjamin Takis, the founder of the D.C.-based firm Tax-Exempt Solutions, and a semi-professional musician, presented the “Tax Strategies” workshop this fall. Mr. Takis has been involved with WALA since 2009 and explains that by presenting he attempts “to take some of the mystery out of tax law and business formation.” Mr. Takis says that he is always happy to present at workshops for WALA and that he enjoys “hearing about the different businesses artists in D.C. are starting.”

Rue Capri Brown, a freelance designer, attended several of workshops for the first time this year. Ms. Brown says that she has heard about WALA for decades but has not attended any workshops until now. Ms. Brown reports that she found the workshops interesting and relevant, and that she felt that the workshop serieswas a great way of reconnecting” her with “important legal issues” that she has neglected in her business. Ms. Brown says that the presenting attorneys were “top notch” and that she looks forward to attending future workshops. Musician Yoko K. reports that she attended WALA workshops about five years ago before coming to this year’s series. She points out that compared to five years ago, more attorneys who are interested in learning about artists’ needs are coming to the workshops to listen in. Yoko K. says that she enjoyed the all of the presenters’ enthusiasm and found the series very encouraging as she embarks on her creative venture.

Next year’s Creative Entrepreneurship Series is currently in the works, as is WALA’s general workshop schedule. Anyone who is interested in attending WALA’s educational events should visit www.waladc.org/events in order to stay up to date.

About the Author: Elena Kravtsoff is an attorney based in Washington, DC. She may be reached at elena.kravtsoff@gmail.com.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Case Review: David Toren v. Federal Republic of Germany and Free State of Bavaria – Task Force Confirms Origin of Liebermann Painting

By Larissa Neumayer *


On 5 March 2014 David Toren, descendent and heir of David Friedmann (who died in 1942) filed a complaint in Washington DC against the Federal Republic of Germany and the Free State of Bavaria seeking the return of a Max Lieberman painting, “Two Riders on the Beach”. Toren is the first claimant to initiate restitution proceedings for looted art following the discovery of the Munich Art Trove (ItsArtLaw.com), in the home of Cornelius Gurlitt (28 December 1932 – 6 May 2014), son of Hildebrand Gurlitt, one of the prominent art dealers who was working with the Nazis during World War II. Yet, it seems Toren and any other potential claimants are put on hold until other parties involved agree on the next steps. These parties are the German Federal Government, the Munich Task Force, and the prospective heir to Cornelius Gurlitt, Bern Art Museum in Switzerland.

Before evaluating Toren’s case and recent developments in more detail, this article will first outline the work of the task force “Schwabinger Kunstfund” (a.k.a. Munich Art Trove).


Almost two years after the discovery of the trove, in November 2013 the Federal Government of Germany and the Free State of Bavaria set up a Task Force, headed by the lawyer Ingeborg Berggreen-Merkel, to establish the origin and ownership of art works in the Munich Art Trove. The Task Force is based in Berlin and consists of about 20 national and international experts, including members of the Jewish Claims Conference and the Holocaust Era Asset Restitution Task Force.


In an interview given to the German newspaper Tagesspiegel last December, Berggreen-Merkel described how the Task Force would conduct the provenance research to determine whether due to persecution, some paintings might have been sold at less than a fair value or handed over under duress (“verfolgungsbedingt entzogen”). Over the following months, it has been reported that the team of experts has been working with the public prosecutor’s office of Augsburg. Information about hundreds of the works found in Gurlitt’s possession but not the entire collection was published on the online platform Lostart.de. In general Task Force’s progress is hard to evaluate as its work is conducted in strict confidentiality.


The Task Force has been criticized for not acting quickly enough (especially right after some looted works were identified) as well as for not providing a sufficient degree of transparency. As journalist Ulrike Knöfel points out, the Task Force does have access to Hildebrand Gurlitt’s accounting records and it should therefore be possible to establish the paintings’ origins easily (Spiegel Online, 03/11/2014). The legal team hired by Gurlitt before his death and attorneys in charge of Gurlitt’s estate have maintained that most of the works in the Gurlitt collection were rightfully owned by their client (see Irina Tarsis’s article Whois Gurlitt.info?). The last will and testament left by Cornelius Gurlitt has been reported as naming a museum in Switzerland (Kunstmuseum Bern) as the heir to the collection.

So far neither the Task Force nor the public prosecutor’s office has revealed any information contained in the Gurlitt family records. Moreover, in March 2014, the Bavarian Higher Administrative Court ruled (Az. 7 CE 14.253) that reporters were not entitled to demand the disclosure of a complete list of Gurlitt’s trove (see Steffanie E. Keim’s article Gurlitt Saga Continues: U-Turn or Rotary?). Nevertheless, if the Gurlitt business records were to be made public, it would not be the first time that accounting records appeared on lostart.de. For example, journalist Julia Voss writing for FAZ online (Frankfurter Allgemeine Zeitung, 04/13/2013) examines the story of a Munich auction house Auktionshaus Neumeister and its handling of the 1936-1945 historical business records. The previous owner of the auction house, Adolf Weinmüller, sold thousands of Nazi-looted objects between 1936 and 1945. In 2008, Katrin Stoll, current owner of the auction house, began making these auction catalogues public – including Weinmüller’s personal comments ­– in order to trace the rightful owners.


Thus, the question arises about whether to prevent the disclosure of Gurlitt’s existing accounting records – decision to do so has precedent and is justifiable. As Voss describes in her article, there is a fine line between discretion and dishonesty. The issues of discretion and transparency will have to be addressed in order to avoid further criticism.


Initially, the commission has been given a time frame of one year to complete the evaluation of the trove. So far the Task Force has only identified two of those paintings as being Nazi-looted art. The first object in question is the painting “Seated Woman” by Henri Matisse, most likely stemming from art dealer Paul Rosenberg’s collection (see The Art Law Report, 07/12/2014). The second painting verified as confiscated by the Nazis is Liebermann’s “Two Riders on the Beach”. It belonged to David Friedmann, David Toren’s great-uncle. Friedmann was a successful industrialist and businessman who lived in Breslau (Wrocław in Poland) and owned an extensive art collection that included works by Courbet, Pissarro, Rousseau and Liebermann.


Toren, now almost ninety, recounts his story in the Complaint. In 1939, at fourteen he left Germany on a train (organized by Kinder Transport) to Sweden, leaving his entire family behind. His parents died in Auschwitz four years later.


“Toren has no heirlooms other than a single photograph of his family to remind him of his parents, and nothing that belonged to his family that he can pass on to his son and grandchildren.” (Complaint, par. 5)


Toren’s claim includes letters that give evidence that the Nazis seized Friedmann’s collection and that Hildebrand Gurlitt subsequently acquired the Liebermann painting.


“Gurlitt worked closely with the Gestapo to steal art from Jews. Sometimes he collected and curated art that had been seized by the Gestapo, and other times the actually directed the Gestapo to loot Jewish homes to seize certain valuable collections.” (par. 36)


Apart from the recovery of the Liebermann painting, Toren seeks an order requiring the defendants to publish a complete list of the art found in Cornelius Gurlitt’s possession and provide all available information about the provenance of the entire trove. This would include the aforementioned accounting records.


Regarding the grounds of his claim, Toren, who is represented by attorney August J. Matteis (Weisbrod Matteis & Copley PLLC, Washington, DC), bases his arguments mainly on wrongful possession and bailment. In his article, Nicholas O’Donnell (Art Law Report, 03/06/2014) discusses especially the second ground, bailment, and its “creative” nature in more detail. The defendant’s motion to dismiss the case was submitted on 9 October 2014 by Jeffrey Harris (Rubin, Winston, Diercks, Harris & Cooke, LLP, Washington, DC). It is based on a lack of subject matter jurisdiction (due to immunity, 28 U.S.C. § 1602, et. seq., Foreign Sovereign Immunities Act). On October 22, David Toren filed an amended complaint in response to the motion to dismiss for lack of jurisdiction. In par. 20 and 21 he argues:


“Pursuant to the FSIA, “A foreign state shall not be immune from the jurisdiction of courts of the United States . . . in any case in which the action is based . . . upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.” 28 U.S.C. § 1605(a)(2). Defendants’ acts took place outside the territory of the United States because Defendants seized “Two Riders” and other works of art from the Friedmann Collection from Cornelius Gurlitt in Munich, Germany, in or around February, 2012. Defendants then entered into a bailment contract with Toren when they indicated their intention to store the seized artworks until they could determine the artworks’ ownership, and Toren submitted documents to Defendants pursuant to that bailment contract.“


According to Toren, Germany entered into a bailment contract when seizing the painting in Munich hence engaging in “commercial activity“. Furthermore, Germany’s continuing refusal to return the painting causes a “direct effect“ in the United States. The case has been assigned to Judge Amy Berman Jackson. It remains to be seen if the lawsuit in Washington will be successful. Toren’s attorney confirmed that they would proceed until the painting is returned.


While in an August Press Release(08/18/2014) the Task Force explicitly identified David Friedmann’s heirs as rightful owners of the painting, nonagenarian Toren is still waiting for this piece of his family history to be returned; recent developments – death of Gurlitt, his last will regarding the disposition of the collection, the pace of the Task Force investigation ­– seem to slow down the process even more.


In his will, Cornelius Gurlitt bequeathed his entire collection to the Kunstmuseum Bern in Switzerland. According to German law (German Civil Code, Section 1944 par. 3) the museum has to decide within six months after being notified of the intended gift whether or not to accept the inheritance. (Even though no official statement has been made to date, it has been reported that the museum intends to accept the testamentary gift in November 2014.) Furthermore, in February 2014 more than 200 paintings were found in Gurlitt’s house in Salzburg (Aigen), Austria. The Austrian “subsidiary” of the trove exceeds the estimated market value of the Munich collection considerably, despite the fact that the collection is small in volume. It includes paintings by Claude Monet, Édouard Manet, a bronze sculpture by Auguste Rodin, and drawings by Cézanne, Picasso and Gauguin. The artworks located in Salzburg would also be covered by Gurlitt’s testament and could therefore be part of the Swiss museum’s inheritance. In case the Swiss museum will indeed accept the gift, Austria’s State Historic Preservation Office (“Bundesdenkmalamt”) would have to authorize export of the Salzburg fragment. In the meantime, other potential heirs to Cornelius Gurlitt (such as a relative domiciled in Spain) already announced intentions to contest the validity of Gurlitt’s testament.


Another important factor that has to be taken into account is that before his death, Gurlitt declared that he was willing to comply with the Washington Conference Principles on Nazi-confiscated Art (1998), which were endorsed by 44 countries, including Germany. These eleven non-binding principles aim at ensuring due care when identifying and handling Nazi-looted art.


Although the Washington Principles would usually not apply to individuals, Gurlitt’s declaration (see Joint press release of the Bavarian State Ministry of Justice and the Federal Government Commissioner for Culture and the Media, Press Release 04/07/2014) constitutes a contract between him and the Federal Republic of Germany and the Free State of Bavaria. According to the Washington principles (par. 8) a “just and fair” measure should be taken in case an artwork is identified as being looted. Even though the wording of the Washington principles is not overly precise, Gurlitt explicitly agreed to return a painting once its provenance points at the rightful owner. Gurlitt’s heir, the Kunstmuseum Bern, would be legally bound by this contract.


While the discovery of the Gurlitt trove infused optimism that art works lost during the Nazi regime survived and returned to the public eye, many grave questions were triggered. Were 21st century government agencies able to move fairly and swiftly to resolve the historical injustice? What are the reasons for the slow response and lengthy evaluation before necessary steps are eventually taken? Should public museums, such as the Kunstmuseum Bern, accept such a controversial inheritance, and how should the material be treated before and after its accessioning? Toren’s case is pending a hearing but to date none of the paintings from the Munich or the Salzburg troves have been returned to their rightful owners and hundreds of artworks still remain unpublished and inaccessible to private research.




Sources: (last accessed 10/05/2014)

About the Author: Mag. iur. Larissa Neumayer, LL.M. (LSE) is a contributing writer with Center for Art Law; she is interested in art/cultural heritage law and litigation and may be reached at larissa [dot] neumayer [at] gmail [dot] com.

Rauschenberg Estate Saga of Trust and Fees Explained

BY Jessica Curley*

Screen shot 2014-10-29 at 12.34.30 PMPrior to his death, Robert Rauschenberg (1925 – 2008) established a revocable trust, which is a type of estate planning tool that allowed him to change or even revoke the trust during his lifetime. The primary purpose of the trust was to benefit the Rauschenberg Foundation (“Foundation”), a non-profit organization, which supports artists and art related issues. The Foundation’s Board of Directors includes Christopher Rauschenberg, the artist’s son, along with several other members of the art and business communities. Named as Rauschenberg estate trustees were three of the artist’s long time friends and associates, including Darryl Pottorf, Ruaschenberg’s business partner and companion of over twenty-five years; Bill Goldston, a trusted business associate; and Bennet Gruntman, the artist’s accountant for over eighteen years. Shortly after Rauschenberg’s death, the three trustees and the Foundation became entangled in estate litigation after the trustees demanded $60 million in fees for administering the $600 million trust, an amount that the Foundation called “unconscionable.” On 1 August 2014, litigation resulted in a Florida Circuit Court awarding the trustees’ fees in the amount of $24.6 million, to be split evenly among the three.

State law governs the field of trusts and estates and under the Florida Trust Code trustees are entitled to “reasonable compensation” where fee terms have not been clearly spelled out in a trust document. According to case law and common practice, the compensation may be [%] of the total value of the estate. Michael Gay, Partner at Foley & Lardner LLP in Orlando Florida, and lawyer for the trustees, claimed that the multi-million dollar compensation sought in this case was reasonable because the work required of the Trustees was extraordinary in nature and included having to handle copyright and tax issues. Gay also claimed that his clients created and executed a unique plan to prevent a decline in trust assets which involved minimizing the potential flood of art into the market, and managing several exhibitions and memorials to maintain and promote interest in the artist’s work. As evidence of their extraordinary management of the trust, appraisals were introduced to the court, which placed the value of the trust assets at $2.2 billion, up from $600 million just four years prior.

Christopher Rauschenberg, the artist’s son and Chairman of the Rauschenberg Foundation, who challenged the original invoice, claimed that reasonable compensation was closer to $375,000, to be split among the trustees. In an affidavit presented to the court, Laird Lile, a solo practitioner specializing in trust and estate law, and attorney for the Foundation estimated that the trustees were essentially demanding a rate of $40,000 per hour, having requested a total of $60 million in compensation for a maximum of 1500 hours of work. Estimates of the hours worked were provided because the trustees failed to keep accurate records of their time. Robert W. Goldman, attorney at Goldman Felcoski & Stone P.A. law firm, representing the Foundation, released a statement saying that a $60 million fee is a “monstrous affront to Bob’s testamentary intent.”

In reaching its decision, the Circuit Court for Lee County, Florida, applied the following set of factors regarding reasonable compensation, as set forth in West Coast Hospital Association v. Fla. National Bank of Jacksonville, 100 So. 2d 807, 811 (Fla. 1958).


  1. The amount of the capital and income received and disbursed by the trustee;
  2. The wages or salary customarily granted to agents or servants for performing like work in the community;
  3. The success or failure of the administration of the trustee;
  4. Any unusual skill or experience which the trustee in question may have brought to his work;
  5. The fidelity or disloyalty displayed by the trustee;
  6. The amount of risk and responsibility assumed;
  7. The time consumed in carrying out the trust;
  8. The custom in the community as to allowances to trustees by settlors or courts and as to charges exacted by trust companies and banks;
  9. The character of the work done in the course of administration, whether routine or involving skill and judgment;
  10. Any estimate which the trustee has given of the value of his own services; and
  11. Payments made by the trust beneficiaries (cestuis) to the trustee and intended to be applied toward his compensation.


In its analysis, the court concluded that factors two, seven, eight and ten, were fairly neutral under these circumstances, and factors one, three, four, five, six and nine came out in favor of the trustees. Regarding factors one and three, the court noted that the Trustees were successful in managing the assets, which increased three-fold under their administration, although it acknowledged that the talent of the artist and favorable market conditions were contributing factors. The court points out that under factor four the Trustees possessed unusual skill and experience and were the “best possible Trustees for the estate” due to their familiarity with the artist and his business affairs. Furthermore, under factors five, six and nine, the court reasoned that the Trustees were loyal to the estate and assumed risk to their reputation in taking on the trusteeships, and that the character of their work was “exemplary.”

Christopher Rauschenberg was disappointed by Circuit Judge Jay B. Rosman’s decision because he believes the award was excessive. On 13 August 2014, the Directors of the Foundation filed a notice to appeal, citing “serious concerns” about the court’s ruling. Christopher Rauschenberg has stated that his goal is to ensure that the trust benefits the Foundation, and not the Trustees.

Rauschenberg was a long time philanthropist, and supported various causes including AIDS research, environmental summits, and domestic violence, in addition to his more-well known art related initiatives. He established the Robert Rauschenberg Foundation for the purpose of continuing his philanthropic efforts after his death, and his son is determined to see that the goal of the foundation is met.




About the Author: Jessica M. Curley is a recent graduate of the Benjamin N. Cardozo School of Law, and is pursuing her interest in art law and financial regulation in New York. She may be reached at jessicamcurley@gmail.com.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

SPOTLIGHT: ARIS Title Insurance Corporation

By Jill A. Ellman*

Screen Shot 2014-10-28 at 11.31.36 AMAn average person’s encounter with title insurance is likely as a contract guaranteeing clear title of real property in connection with a real estate transaction.  A purchaser of real estate property today would not fathom completing the transaction unless the property in question has clear title.  Yet, the purchase of art title insurance is a comparatively new notion in the art world where multi-million dollar sales are a common occurrence.  Currently, ARIS is the leading seller of fine art title insurance.  ARIS is the creation of attorney Lawrence M. Shindell and former insurance executive Judith L. Pearson.  Both had a mutual client that needed a unique insurance policy to cover a specific World War II-related risk.  The research process that ensued led to the inception of ARIS, which obtained New York State regulatory approval to sell insurance in 2006.  In November 2010, the insurer Argo Group, which underwrites specialty insurance and reinsurance products, purchased the company, allowing for the expansion of ARIS’s insurance practice.   Arguably, the ability to insure title to art is a better alternative to litigation over title disputes and authenticity.  This article explores what ARIS covers, examines some of the issues ARIS faces underwriting art risk, and discusses solutions that may assist in minimizing such risk.

The ARIS Policy

ARIS insures museums, private collectors, banks accepting art as collateral, dealers, and galleries.  Its Art Title Protection Insurance (“ATPI®”) policy (the “ARIS Policy”) is based off of the American Land Title Association (ALTA) real estate title insurance form and is designed to insure art owners against defective title risks.  The ARIS Policy in and of itself covers defective title claims, from artwork with unverified provenance (in the case of theft or illegal import of objects) to liens or lack of authorization to sell artwork.  Provenance, or an artwork’s ownership history, is most often an issue with respect to looted and/or stolen art, such as art looted during World War II.  According to ARIS’s promotional material, art theft encompasses 25% of art title risk; whereas traditional liens and encumbrances account for 75%.  Currently, ARIS’s most common claims include those surrounding estates and a seller’s lack of authority to sell an artwork.  For example, familial or divorce-related claims may arise in the event a part-owner of an artwork is kept out of a sales transaction.

Many insurance policies provide coverage for loss under a certain policy period, whether it is occurrence or claims-made coverage.  However, coverage under the ARIS Policy may continue as long as the policyholder retains an insurable interest in the fine art or is liable to a third-party claimant under certain instances.  Typically, a policyholder will purchase the ARIS Policy at the time of a transfer of title, including in the case of consignment or purchase from an auction.  There is a one-time premium paid by the purchaser, whose artwork is covered for the face value of the ARIS Policy plus costs to defend a claim.  Coverage may be excluded for intellectual property rights related to the artwork, claims related to authenticity, issues arising out of bankruptcy, and government seizure of art.  And of course, there is no coverage for any misstatements or omissions by the insured in the application process.

With respect to individual investors of art, ARIS represents that the ARIS Policy affords greater protection than other types of insurance.  Homeowner’s insurance policies with art riders, for instance, do not include coverage for title-related claims.  An ARIS Policy may protect the art object in the event of consignment and is transferable to a policyholder’s heirs.  Museums may also benefit from holding art title insurance as D&O insurance policies will only protect a museum’s management from claims brought against them for their conduct in the course of business; standard D&O policies do not apply to art title claims and may specifically exclude such claims. 

Nonetheless, art title insurance is not a panacea for eliminating all risks associated with an art object.  Whereas ARIS provides coverage for defects in title occurring in the past, buyers will still need to purchase insurance that will safeguard them against future loss and theft, which are covered in fine art property insurance policies.  Further, ARIS is not an expert in authenticating art; nor does it insure authenticity. 

Underwriting Art Risk

Dealers and auction houses have caught on to the trend of encouraging buyers to purchase art title insurance for the assurance that their artwork has clear title.  As artwork sometimes contains incomplete provenance, especially art possibly looted during World War II, a buyer is held to a higher duty to investigate before purchasing and may not exclusively rely on the due diligence of dealers or auction houses.  In certain circumstances, sellers will purchase title insurance to provide the buyer or dealer assurances of clear title, such as when a dealer sells a consigned artwork.  Sometimes auction houses will encourage sellers to purchase art title insurance, as in the case where Christie’s sold artwork from the Salander-O’Reilly Galleries in June 2010. See Title Insurance Concept Spreads Into Art Sales.  One explanation for art title insurance gaining traction is the simple reason that art, like real estate, has increasingly become another way to diversify a financial portfolio, particularly for high net worth individuals.  In fact, ARIS has seen a shift in its representative insureds, from those purchasing art title insurance because of doubts concerning the provenance of their artwork, to those seeking to protect their investment.  Such a need for art title insurance is consistent with the trend of art becoming a new asset class.  According to Deloitte Luxembourg’s 2014 Art & Finance Report, buyers seeking to purchase art as an investment rose from 53% in 2012 to 76% in 2014. See Deloitte Luxembourg & ArtTactic, Art & Finance Report 2014 Whitepaper.   

As part of the underwriting process, ARIS reviews the authenticity of fine art.  For objects with an ownership history, research methods and art experts may assist in affirming an artwork’s unverified provenance.  When underwriting contemporary artwork, however, ARIS must develop a view on that artwork’s authenticity.  One need to look no further than the recent Knoedler Gallery scandal, in which fake paintings were sold to an unassuming public, to understand the potential risk of insuring a piece of art, later found to be a fake.  As insurance is a moral hazard, ARIS recognizes that due diligence and research cannot completely absolve risk and claims do arise. 

New Technology

In order to confront and preempt future title issues, ARIS invested in a center at the State University of New York at Albany that will use technology to mark art objects.  This initiative aims to devise an authenticity standard on which property insurers, museums, foundations and artists rely.  ARIS anticipates that placing a mark on a fine art object will mitigate risk for insurers, thereby potentially lowering premium costs for insureds.  Using modern methods from DNA markings to nano-technology, a team of scientists, art historians and legal experts will work collaboratively to develop a standard of authenticity for fine art, which will bear markings, in the form of a synthetic DNA liquid, identifying their unique characteristics.   ARIS will not own the mark, as third-party entrepreneurs will create and sell them, but it is advocating for establishing an authentication standard because it recognizes the benefit of clarifying an artist’s legacy.  The anticipated launch date for this initiative is pending.

The idea of applying science to mitigate art disputes is not a new concept.  For instance, radiocarbon dating assists archaeologists with the chronology of material objects.  Art historians also use scientific methods as a means to identify and pinpoint art belonging to an artist’s particular time period.  Pigment analysis, thermoluminescence dating, ultraviolet light and X-rays are just a few of the many methods used as a means of authenticating artwork. See Forensic Science for Antiques. The marking initiative is particularly useful for art in the primary art market, or art that has never been challenged or contested; for example, art that is sold directly from an artist’s studio, contemporary estates , or foundations.  However, art already in the secondary art market, or art that has a sale history, will be more of a challenge to authenticate.  Art on the secondary market that is contested, such as a disputed Jackson Pollack work, requires more attention. 

If the marking technology gains traction among collectors and dealers, appraisers and art historians need not fear for their job security as insurers will still need to rely on their expertise along with other scholarly evidence found in art databases and catalogue raisonnés.  This especially holds true for art in the secondary market.  Ideally this new technology will ease the burden for appraisers, some of whom are faced with liability for rendering their opinion, to the extent that they are retained to endorse artwork for valuation purposes (for more discussion of the Bill before the New York State Assembly to amend New York’s Art and Cultural Affairs Law and the challenges that art authenticators face See The Shifting Sands of Art Authentication).  The new scientific methodology may work in tandem with appraiser’s expertise as a means of providing a more reliable evaluation of fine art and perhaps reduce the frequency of costly art authentication legal disputes.

On its own, this new standard may still not be enough to achieve complete assurance of authenticity.  Reliability may also be an issue as any technology, especially new technology, may still be prone to error until it is perfected over time.  And forgers, who are already skilled in replicating materials, may also find ways of duplicating an object’s unique DNA code or mark.  This type of technology, arguably, is initially ideally suited for contemporary art that directly emanates from a known source, such as an artist’s studio.  Given the difficulty of authenticating art removed from an artist’s studio or foundation, the technology is likely to be more effective as a supplement, and not a replacement, to the expertise of scholars and appraisers. 

One thing seems to be clear, the demand for art title insurance continues to increase.  As the first mover in the industry, ARIS is well positioned to service this market niche.

*The author would like to thank Sherri North Cohen of ARIS for her assistance in providing information for this article.


About the Author: Jill A. Ellman is an attorney at Tressler LLP. She is interested in the intersection between business and art law.

Case Review: Crile v. Commission of Internal Revenue

By Chris Michaels, Esq.*

“All children are artists. The problem is how to remain an artist once he grows up.” – Pablo Picasso

For many artists, the financial instability that accompanies an artistic profession forces the artist to seek employment with a more consistent paycheck. A “day job” often provides the income for rent and bills while the artist continues to pursue their artistic endeavors. In this situation, tax deductions for expenses related to creating art may help the artist stay afloat financially. It seems like a fairly straightforward situation until April 15 rolls around and it is time to pay taxes. In a ruling filed by the United States Tax Court on October 2, 2014, the Court resolved a question of whether individuals who pursue their art while otherwise employed can deduct art-related expenses. The decision the Court reached helps artists to remain artists, even if they are not making a profit from their work.

Susan Crile Website

Susan Crile Website

The petitioner in this case, Susan Crile, has worked as an artist for over four decades. She has created more than 2,000 works using oil, acrylic, charcoal, pastels, and many other mediums. Her art is in the permanent collections of several museums including the Metropolitan Museum of Art, the Guggenheim Museum, the Brooklyn Museum of Art, the Phillips Collection, and several colleges and universities. In addition, her work has been purchased by corporations including Bank of America, General Mills, Charles Schwab, and several major New York City law firms. She has been represented by at least five New York City art galleries, most recently in 2009 by the Michael Steinberg Fine Art gallery. She has received awards from the National Endowment for the Arts and her works have been reviewed in almost every major art publication. Crile is also a full-time tenured professor of studio art at Hunter College in New York City, where she has worked in some capacity since 1983.

The respondent in this case, the Commissioner of Internal Revenue, determined that Crile had deficiencies in her Federal income tax returns for the years 2004, 2005 and 2007–2009. Specifically, respondent argued, among other things, that Crile was not entitled to claim deductions for expenses related to her artwork because she did not intend to profit from her art. The Court, therefore, was faced with determining the issue of whether Crile was engaged in a trade or business with the intent of making a profit from her activity as an artist. Crile’s artwork during the tax years in dispute included a series of works based on the life of Saint Francis in the Basilica di San Francesco in Assisi, Italy, works based on the events at the Abu Ghraib prison in Iraq, silkscreen printings, a series of small abstract paintings, and a project based on the prisoners in Guantanamo Bay.

Since her art career began in 1971, Ms. Crile sold over 300 works with gross proceeds of $1,197,150 and an earned income of $667,902. From 1971 to 2013, however, she never reported a net profit from her art business due, in large part, to the deductions she took for expenses relating to the sale of her art.

To determine whether Crile was entitled to the deductions she had taken, the Court considered two sections of the Internal Revenue Code, sections 162(a) and 183(b). Under section 162(a), deductions are allowed for “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” To be entitled to deductions under section 162(a), the taxpayer must show that he or she engaged in the activity with the intent of making a profit. Further, under section 183(b), if the activity is not engaged in for profit, deductions are not allowed except to the extent of gross income derived therefrom. Essentially, in order to take the deductions, Crile had to prove that she was in the art business to make a profit.

A threshold issue that had to be decided before the Court reached the issue of Crile’s intent to earn a profit concerned the scope of her activity as an artist. Under section 183(b), the activity to be considered can either be a “single undertaking” or “multiple undertakings.” The Commissioner argued that Crile’s art activity was not separate from her activity as an art professor and was thus a “single activity.” As a single activity, the Commissioner posited that Crile had to claim her art-related expenses as unreimbursed employee business expenses and not as deductible business expenses. The Court ultimately reasoned, however, that she had practiced as an artist for a decade before she had started teaching and that many activities she undertook as an artist were unrelated to her teaching career. As such, the Court held that Crile’s artist activities and professor activities were multiple undertakings that had to be analyzed separately under section 183(b).

The bulk of the Opinion handed down by the Court dealt with whether the artist conducted her art activity with an intent to earn a profit such that she could take deductions for expenses attributable to that activity. The Court analyzed the following nine factors and used a balancing test to determine whether Crile engaged in the activity for profit:

  1. The manner in which the taxpayer conducts the activity;
  2. The expertise of the taxpayer or her advisers;
  3. The time and effort spent by the taxpayer in carrying on the activity;
  4. The expectation of the taxpayer that assets used in the activity may appreciate in value;
  5. The success of the taxpayer in carrying on other similar or dissimilar activities;
  6. The taxpayer’s history of income or losses with respect to the activity;
  7. The amount of occasional profits, if any;
  8. The financial status of the taxpayer; and
  9. Elements of personal pleasure or recreation.

An analysis by the Court concluded that factors number one through five and nine were in favor of Crile and factors six and seven were in favor of the Commissioner. Factor number eight was neutral. As such, the Court held that Crile acted with the requisite intent to make a profit and, therefore, could take deductions for “ordinary and necessary expenses.” The Court reserved deciding on whether the deductions that Crile took were actually “ordinary and necessary.”

The Court’s decision in this case is a win for struggling artists everywhere. In finding that Crile engaged in her art activity as a distinct activity from her employment as a professor, the Court gave artists the opportunity to take deductions for expenses relating to their artwork as long as they are engaged in that activity for profit. While it certainly is not a windfall for anyone, the Court’s decision makes it a little easier for grown ups to remain artists.

Petitioner, Susan Crile, was represented by Robert H. Baron, Micaela McMurrough, and Megan Y. Lew, all of Cravath Swaine & Moore LLP. Respondent, Commissioner of Internal Revenue, was represented by Jane J. Kim and Michael J. De Matos of the Internal Revenue Service.


About: Chris Michaels is a litigation attorney in the Philadelphia office of the Atlanta, GA-based law firm, Cruser & Mitchell, LLP, where he actively pursues his interest in the field of art law. He may be reached at (518) 421-7238, chriswmichaels@gmail.com, or on Twitter @CMichaelsartlaw.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Getty v. Microsoft: Flagrant Infringement or a New Fair Use Frontier?

By Elena Kravtsoff, Esq.*

On September 4, 2014, Getty Images, Inc. [Getty] filed a lawsuit in the Southern District Court of New York against Microsoft Corporation [Microsoft] over the Bing Image Widget, whose beta version was released less than two weeks earlier. The lawsuit seeks to “enjoin Defendant Microsoft from infringing and facilitating the massive infringement of Plaintiff’s copyrights through [the Widget].” In its complaint, Getty describes itself as “one of the world’s largest providers of commercial visual content and the leading provider of commercial images online, representing more than eighty million unique works of digital imagery.” According to Getty, the Widget allows website publishers to display images collected by the Bing Image Search without attribution of, much less the permission of the copyright owners. Moreover, says Getty, the Widget financially benefits Microsoft by promoting the Bing Search Engine. As discussed below, Microsoft adamantly disagrees. The parties exchanged a flurry of briefs in September and October. As of the date of this blog’s publication, Getty’s motion for a preliminary injunction has been denied since the court was satisfied that Microsoft disabled the Widget and indicated that it does not intend to re-launch it, and the court’s decision on Microsoft’s motion to dismiss remains to be seen.

The Bing Image Widget is no longer publically available, but based on common denominators in Getty’s and Microsoft’s descriptions of the service, the Widget is a snippet of code that an individual building a website can program into his or her webpage. The website builder then runs an image search, and images responsive to his or her query (found through Microsoft’s Bing Search Engine) are displayed through the Widget, in either a collage or a slideshow format. Thumbnail images for the collage format are pulled directly from the image copies saved by the Bing Search Engine and stored on Microsoft’s servers. Images displayed in the slideshow view are funneled through the Widget from the websites that host them and are not copied or stored by Microsoft. Screenshots of the collage and slideshow displays are available in both parties’ pleadings.

Getty and Microsoft’s consensus on what the Widget is and what is does ends with this basic description. According to Getty, Microsoft infringes on Getty’s exclusive rights to reproduce and publically display copyrighted works that are allotted to it by 17 U.S.C. § 106(1), (5). Microsoft, Getty argues, advertises to publishers that the image display powered by the Widget “enhances your web site… and provides your users with beautiful, configurable image galleries and slideshows.” Getty explains that it itself offers an “Embed” feature, which allows non-commercials users to display millions of Getty’s images on their website for free. Notably, when users populate their websites with images through Getty’s “Embed” feature—which, like the Widget, is a snippet of code—the images are automatically attributed and link to Getty’s website, allowing individuals to license the images for commercial use. Getty agues that the Bing Image Widget is similar to the “Embed” feature, but that instead of properly attributing the images, it boasts Bing’s logo, and, at least in the collage view, it directs users to the Bing Search Engine, rather than the copyright owner’s site. Getty argues that Microsoft and Widget users benefit through the Widget’s unauthorized display of images, while Getty suffers financial harm as its images are being illegally used without appropriate compensation to Getty or its clients. Getty states that since the Widget utilizes the images pulled by the Bing Search Engine, “Defendant has turned the entirety of the world’s online images into little more than a vast, unlicensed ‘clip art’ collection for the benefit of those website publishers who implement the Bing Image Widget, all without seeking permission from the owners of copyrights in those images.”

Both parties note in their briefs that courts have previously decided that when search engines crawl the Internet and make thumbnail copies of images, it’s fair use. Thus it is not surprising that in its memorandum in opposition, Microsoft emphasizes the key role of the Bing Search Engine in providing the thumbnail images to the Widget. Microsoft argues that Getty erroneously “conflates” the thumbnail library with the operation of the Widget, which, it says, does not create its own thumbnails and only helps users access the images created by the search engine (whose creation was fair use). Getty states that the Widget is not marketed or used as a search engine, and therefore a fair use defense is not applicable (“According to Defendant, once a fair use copy has been made for one purpose, that copy can apparently be used for any purpose whatsoever, even if that purpose would not have excused the copying as fair use in the first instance. Defendant’s position… finds no support in the law – or even in common sense.”)

Looking at the Perfect 10 v. Amazon court’s analysis (on which Microsoft relies) of why Google’s thumbnails constitute fair use does not provide a clear-cut answer as to whether the Widget’s use of thumbnails warrants the same conclusion. The Widget’s use of thumbnails could be construed as a new and transformative way to present information to the public, or as blatant infringement that supplies website developers with images they would otherwise have to license. According to 17 U.S.C. § 107:

Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies… or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include—

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

The court in Perfect 10 v. Amazon analyzed fair use factors vis-à-vis Google’s thumbnail images and concluded that factors (2) and (4) did not weigh in favor of either party, that factor (2) weighed only slightly in favor of Perfect 10, and that factor (1) weighed in favor of Google because the thumbnails were “highly transformative:”

Indeed, a search engine may be more transformative than a parody because a search engine provides an entirely new use for the original work, while a parody typically has the same entertainment purpose as the original work… We conclude that the significantly transformative nature of Google’s search engine, particularly in light of its public benefit, outweighs Google’s superseding and commercial uses of the thumbnails in this case. In reaching this conclusion, we note the importance of analyzing fair use flexibly in light of new circumstances. We are also mindful of the Supreme Court’s direction that ‘the more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use’” (emphasis added).

Microsoft also points out that the Widget does, in a way, direct users to the host website: when the user hovers his or her curser over any of the thumbnail images displayed in the Widget, the web address of the image’s host appears, and in the slideshow mode, the scrolling images are directly linked to their host website, whether it be Getty’s website or the website of another host. Microsoft further argues that the slideshow view in the Widget is the same slideshow view that appears in the Bing Image Search’s “detail view” and that Microsoft does not make any copies of images associated with the slideshow view. Microsoft states: “In other words, the Widget merely provides a location address or pointer, not a copy of the image itself. It is well established that this type of HTML in-line address linking does not constitute copying or display of an image. Indeed, this is precisely the issue that was considered in Perfect 10.” The Perfect 10 v. Amazon court summarized the district court’s “server test:”

“In considering whether Perfect 10 made a prima facie case of violation of its display right, the district court reasoned that a computer owner that stores an image as electronic information and serves that electronic information directly to the user (“i.e., physically sending ones and zeroes over the [I]nternet to the user’s browser”) is displaying the electronic information in violation of a copyright holder’s exclusive display right. See 17 U.S.C. § 106(5). Conversely, the owner of a computer that does not store and serve the electronic information to a user is not displaying that information, even if such owner inline links to or frames the electronic information.”

Getty argues that the “server test” that was used in Perfect 10 v. Google and led the district court to determine that Google wasn’t infringing because the images that were produced through its search engine did not reside on its servers does not apply here because the Widget is not being used as a search tool meant to direct users to other website. Aside from this argument, however, Getty does not present a clear explanation as to why the “server test” would not apply to the Widget’s slideshow view.

Another interesting point worth noting is Microsoft’s argument that the Widget only helps website developers do what they can do anyway (“The Widget does not provide search functionality directly; it simply helps automate the coding that the website developer could otherwise do himself in order to display image search results on his websites if the Widget did not exist. [] The Widget just makes that integration of such code easier for the website developer.”). Assuming that the Widget’s functionality is found to be infringing, the fact that website developers could or would have infringed even without the Widget does not help Microsoft. This somewhat strange argument is apparently Microsoft’s segue-way to disputing its role as a volitional actor since the Widget responds to user commands: [N]o alleged infringing actions ever occur unless initiated by the user. This is true for both Slideshow and Collage. As a result, Getty cannot succeed on its claim that Microsoft is a direct infringer.” Getty dismisses this argument as a “red herring” and states that “[Microsoft’s] volitional conduct is immediately apparent from the exclusive control that Defendant exercises over the entire process by which images are selected and displayed through the Bing Image Widget.”

While at first blush Microsoft’s use of copyrighted images within the Widget appears to be a clear-cut case of copyright infringement, the ever-changing nature of the Internet and fair use renders a finding in favor of Getty less than certain. The district court in Perfect 10 v. Google found that Google’s thumbnails were not fair use, which is not an unreasonable conclusion. Yet the circuit court in Perfect 10 v. Amazon pointed out a “highly transformative” perspective on the very same use of thumbnails. Assuming the case at hand does not settle, will the court find a way to regard the Widget’s functionality as transformative and valuable to the public? Stay tuned.


Complaint, Getty Images, Inc. v. Microsoft Corp., No. 14-CV-7114 (S.D.N.Y., Sept. 4, 2014).

Plaintiff’s Memorandum of Law in Support of Order to Show Cause, Getty Images, Inc. v. Microsoft Corp., No. 14-CV-7114 (S.D.N.Y., Sept. 4, 2014).

Microsoft Corporation’s Memorandum of Law in Opposition to Plaintiff’s Motion for Preliminary Injunction, Getty Images, Inc. v. Microsoft Corp., No. 14-CV-7114 (S.D.N.Y., Sept. 4, 2014).

Plaintiff’s Replay Memorandum in Support of Motion for Preliminary Injunction, Getty Images, Inc. v. Microsoft Corp., No. 14-CV-7114 (S.D.N.Y., Sept. 4, 2014).

Order, Getty Images, Inc. v. Microsoft Corp., No. 14-CV-7114 (S.D.N.Y., Sept. 4, 2014).

Opinion and Order, Getty Images, Inc. v. Microsoft Corp., No. 14-CV-7114 (S.D.N.Y., Sept. 4, 2014).

Perfect 10, Inc. v. Amazon.com, Inc., 487 F.3d 701 (9th Cir. 2007).

Perfect 10, Inc. v. Google, Inc., 416 F. Supp. 2d 828 (C.D. Cal. 2006).

About the Author: Elena Kravtsoff is an attorney based in Washington, DC. She may be reached at elena.kravtsoff@gmail.com.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Alternative Alternatives: ALT2 Conference Review

By Jessica M. Curley

On 29 September 2014, Bonhams auction house, together with BigelowSands LLC, hosted the fourth ALT2 Conference at its Madison Avenue location in New York City, where about 100 attendees from a multitude of industries including banking, marketing, commodity trading, and law gathered to hear world leading experts in these fields discuss investments in “alternative alternative assets.” The three panels were dedicated to rare gems and diamonds, healthcare and entertainment royalty rights, and vintage cars. Some of the speakers included Susan Abeles, Director of US Jewelry, Roger Miller, CEO of Alchemy Copyrights and CIO the Bicycle Music Company, and Bruce Wennerstrom, Founder, Chairman and CEO of the Greenwich Concours d’Elegance. The half-day conference was followed by a wine tasting event lead by Jennifer Williams-Bulkeley, Managing Partner of AOC Investment Advisors.

An “alternative asset” is a newer type of asset that traditionally had not been included in a standard investment portfolio. Some “alternative assets” include hedge funds, venture capital, real property, and commodities. A distinguished class of alternative assets, so-called “alternative alternative assets,” has begun to increase in popularity and includes diamonds, fine art, stringed instruments, vintage cars, healthcare and entertainment royalty rights, wine and vintage watches.

At ALT2 event experts discussed how these alternative alternative assets have gained in popularity and are becoming increasingly accepted as a way to further diversify investment portfolios. For example, panelist Alan Landau, CEO and co-founding Partner of Novel Asset Management, attorney by training and graduate of Benjamin N. Cardozo School of Law, advised that the diamond industry is not highly regulated in general, and that because diamonds are not classified as a financial product, they are not regulated by securities laws despite their being utilized for investment purposes. Mahyar Makzani, Co-Founder & Joint Managing Director of Sciens Colour Diamonds Fund, who moderated the panel on diamonds, noted that his fund voluntarily provides clients with “comfort points” to fill the gap created by the lack of regulatory oversight of this specific asset class.

Experts on the music, healthcare and film royalty rights panel advised that these less institutionalized assets are governed by traditional US intellectual property law. Dempsey Gable, Managing Director & Founding Fund Manager of the Opportunity Fund within Alternative Investments of APG Asset Management, explained that under US copyright law, films and television shows can be licensed to provide low yield low risk investment opportunities for investors. Panelist Tadd Wessel, Managing Director of OrbiMed, advised on the complexities of the healthcare system, and spoke to ways in which US patent law affects investment decisions regarding healthcare royalties.

The final panel, dedicated to vintage cars, discussed the steadily increasing valuation of classic cars, and the asset class’ low volatility and low correlation to other alternative alternative asset classes. Panelist Eric Minoff, a Specialist in the Motoring Department at Bonhams, advised the audience on the rapid growth of motorcar sales at auction, noting the increasing investor interest in this type of asset. Bonhams recently auctioned a 1962 Ferrari 250 GTO Berlinetta, which went for $38 million, making it the most valuable car to ever be sold at auction.

The panels seemed to strike a chord with attendees whose questions largely pertained to the regulation of certain asset classes, liquidity issues, and yield to risk ratios. The panel dedicated to royalty rights was most informative on the issue of regulation, and was of significant interest to attorneys, as this asset class is strictly governed and regulated by US intellectual property law. Regulation of diamonds and vintage cars is much less extensive, but both respective panels noted that increased investor interest could create a demand for heightened oversight. Liquidity potential also varied greatly among the various alternative alternative assets, as discussed by each panel. For example, whereas the ability to easily sell diamonds on the market make them highly liquid, copyright licenses, however, involve complex ownership and usage issues that prevent the asset from being easily alienable, and therefore have low liquidity. Yield to risk ratios also varied across the asset classes with film and TV shows providing a low risk low yield investment opportunity, while other tangible assets had a higher risk due the potential for physical damage or loss.

The ALT2 Conferences are by invitation only.

About the Author: Jessica M. Curley is a post-graduate fellow from the Benjamin N. Cardozo School of Law. She is pursuing her interest in art law and financial regulation in New York, and may be reached at jessicamcurleyATgmailDOTcom.

Viability and Feasibility: How much is an Art Museum Worth?

By Elizabeth Lash, Esq.

Who can say how much a piece of artwork is worth?  Who owns public art?  In one particular case, that of the Detroit Institute of Art (the “DIA”), these questions were not merely academic or philosophical.

Over the past year or so, the possible answers to these questions were argued in countless appraisal reports, legal briefs, journalistic commentary, and, since this past September, hearings presided over by a bankruptcy judge.  At the heart of this debate lay the fate of the art museum in question–the DIA and its collection of more than 60,000 works, consisting of pieces from almost every continent and time period, from antiquity through today.

As one of the top six museums in the country, with an annual operating budget of about $32 million, situated in one of the most financially challenged municipalities in the country, the DIA looked like the answer to everyone’s prayers since the City of Detroit (the “City”) went into bankruptcy last year.  Primarily, most parties involved wished to sell or collateralize the DIA’s collection to repay debts–either that of private creditors, or for City retiree pensions and capital projects.  The City stood alone in attempting to use the value (without a sale) of the DIA as part of its proposed “grand bargain” to exit bankruptcy.

Specifically, the City faced off against, among others, major bond insurers, Syncora Guarantee, Inc. (“Syncora”) and Financial Guaranty Insurance Co. (“FGIC”), City retirees, and hedge funds, in its plan to transfer the ownership of the DIA back to its original owner, the DIA Corp., a nonprofit charitable corporation, in exchange for $816 million in funding from the State of Michigan (the “State”) and other private donors, for the City to use to offset City retiree pension reductions.

While much of the contentiousness in this dispute has been ameliorated since Syncora, the largest and most vociferous objector to the “grand bargain,” along with City retirees, reached potential settlements with the City, not every issue is quite settled yet.  The remaining bond insurer, FGIC, and some hedge funds continued to fight the City on its plan until recently (although FGIC is now in closed door talks with the City), so if the deal falls through, the issues raised could still pose barriers to an approval of the City’s proposed plan by the presiding Judge Rhodes.    

To understand whether and how the DIA was proposed to be utilized, it is helpful to understand how municipal bankruptcy works (as opposed to corporate bankruptcy).  An ordinary corporate debtor can be forced to sell its assets to satisfy its creditors under the “absolute priority rule”.  (So, as in this instance, a corporate debtor could ordinarily have been forced to liquidate the DIA’s collection to repay its bondholders first.)  Municipalities, however, cannot be so forced, because such a decision by a branch of the federal government could otherwise infringe upon the Tenth Amendment, i.e., upon a state’s ability to govern its internal affairs.  Instead, a bankruptcy judge is limited to deciding whether a municipality is eligible to declare bankruptcy and whether its plan of debt adjustment is fair and equitable, as well as feasible. (The judge also oversees implementation of the plan.)

For Judge Rhodes to confirm the City’s plan, he must determine that the proposed plan is fair, equitable, in the best interests of creditors, and feasible.  Whether a plan is in the best interests of creditors could be met by a showing that the amount to be received by creditors under the plan is all they could reasonably expect given the City’s circumstances, including its ability to impose additional taxes or cut services (although some courts simply require a municipality’s plan to be better than the alternative–i.e., if bankruptcy were to be dismissed and creditors were not repaid at all).  And in this case, the alternatives are quite limited as far as raising taxes–the City has testified that it only collects 50% of its property taxes, and dares not raise its taxes any more.

As to whether a plan is feasible?  That would be a plan that would allow a debtor to repay its pre-petition debt while continuing to provide essential government services.  Some observers have commented that Judge Rhodes laid the groundwork throughout September’s hearings to demonstrate that selling off the DIA and its collection would undercut the potential viability of the City in exiting bankruptcy–which may indicate which way he would veer when deciding to approve the City’s plan.   

But regardless of whether the artwork should be sold to repay the City’s debts–could it have been sold?  The ownership history of the DIA is a bit tortured when you begin reviewing the facts.  The DIA began its life via legislative fiat as a “public art institute,” known as the Detroit Museum of Art (“DMA”), to be managed by a nonprofit charitable corporation (the “DIA Corp.”), who could not sell or dispose of the DMA’s collection.  For some time, the City funded the DMA with taxpayer monies, but this was not looked upon favorably by the state’s highest court (and, one assumes, the taxpayers).  To resolve this issue, the state legislature had to pass another law to permit the DMA to transfer some of its collection to the City, and the City in turn had to create a municipal agency (the Arts Commission) to operate the DMA –and, of course, to receive taxpayer money.

When public funding dried up (read: i.e., the City and the State ran into some small financial issues), the DMA (now known as the Founders’ Society), was asked to come riding to the DIA’s rescue.  This was accomplished via an operating agreement, executed by the Founders’ Society and the City, on behalf of the Arts Commission.  The deal was that new pieces acquired by the DMA would be owned by the DIA (i.e., the City), while pieces currently owned by the DMA would continue to be owned by the DMA.  (The Founders’ Society still owned some of the artwork at the DIA, since not all pieces had been transferred to the City–not confusing in the least!)  The DMA agreed to run the operations and pay for the costs of the DIA.  Further, the legislature, in 2012, passed a law permitting the levying of property taxes to fund the DIA, and some counties agreed to use their property taxes to do just that.

There was, however, one issue which was not addressed by the operating agreement, which was what would occur in bankruptcy?  (One could argue that such a circumstance could reasonably have been foreseen, considering the purpose for the operating agreement, but we won’t quibble over that one.)

The Michigan Attorney General came out with an opinion, just prior to the entry by the City into bankruptcy, that the DIA’s collection could not be sold to satisfy the debts of the City, deeming the DIA and its works to be held in charitable trust for the people of the state of Michigan. (Even if it was nowhere stated that this was so.)  Such an opinion was key to avoiding a sale, as property held in trust is not considered an asset of a bankruptcy estate.

However, despite the issuance of the legal opinion, considering the history of this institution, the issue may not have been so clearcut.  Syncora, in fact, attempted to subpoena the Attorney General for documents related to the issuance of this opinion, and it was likely that this issue would have been further litigated, had Syncora not decided recently to settle with the City.

Besides the question of ownership, the question that simultaneously had to be answered was how would the art be valued, and by whom?  If the art could be sold in bankruptcy, then who would buy it, and for how much?  Would selling it in liquidation devalue the work, or would the collection still attract top dollar?  And if the art could not be sold, because the City owned the collection, but would only be used by the City to satisfy other obligations, how much should the collection be valued at then?    

Valuations of the art varied wildly, depending on who was valuing it and for what purpose.  For instance, Christie’s Inc., the auction house, valued the DIA’s collection between $454 million and $867 million, a figure which some claimed was artificially low merely to support the City’s proposed plan. A city-commissioned report valued the collection much higher ($2.8 to $4.6 billion), but estimated that in liquidation, the collection would only fetch between $850 million and $1.8 billion.  Some appraised the entire collection at close to $2 billion, and at least one prospective investor was prepared to bid $1 billion or more just for key pieces in the collection.   Finally, another report, commissioned by the bondholder FGI, estimated the value of the collection at $8 billion.

While this may no longer matter, since many of the parties have already agreed to the City’s plan (which does not count the DIA as an asset in bankruptcy), nonetheless, one can be sure that FGIC used this as a bargaining chip to get more from the City, since a showing of an artificially low valuation could have upended the City’s proposed plan.   

As we watch the hearing move forward with the remaining players (FGIC and others), the lens through which to read the news about the proposed settlement(s), whether they relate to the DIA or not, are what is considered fair, equitable, in the best interests of the creditors, and feasible.  In California, the decision was made to put pensions ahead of bondholders, with the result that the cities can no longer borrow; in Rhode Island, the pensions had to take steep cuts along with bondholders, and the city was able to keep borrowing, but at a steep price to its retired police and firefighters.  In this case, one would hope that it would be fair and equitable for the DIA to remain as is, safe from the reaches of the bankruptcy court, and it is likely so–but we shall see.   


About the Author: Elizabeth R. Lash, Esq., is with Kroll Associates, Inc. (formerly of Lash & Associates, LLC, where she worked as a consultant on commodities consulting and regulatory issues).  She currently drafts, reviews, and negotiates agreements relating to cyber security and data breach notification.

DISCLAIMER: This article was prepared by Ms. Lash in her personal capacity; the opinions are the author’s own, and do not reflect the view of Kroll Associates, Inc. or of its affiliates.

Caveat artifex: The case of one Immendorff Ready-Made

By Steffanie E. Keim, Esq. 

The German artist Jörg Immendorff (June 14, 1945 – May 28, 2007) was controversial during his lifetime and the controversies surrounding his art have not ended with his death.

Following Immendorff’s death, his estate became embroiled in numerous high profile lawsuits, including a suit by his illegitimate son, Jean-Louis, from a relationship with Marie-Josephine Lynen, and several suits launched by his widow, Oda Jaune, against various gallery owners and art dealers he had dealt with.

One of Jaune’s suits dealt with a version of the painting, Ready-Made de l´Histoire dans Café de Flore, offered for sale in Düsseldorf with the Viennese auction house Dorotheum auction house in 2007 (the painting was withdrawn from the auction following the criminal complaint by Jaune as discussed below). In 2008, Michael Werner, Immendorff’s long-term art dealer, issued a warning that some works regarded as Immendorff’s may be forgeries. Critics claim that the forgery controversy is merely a public relations stunt and a market dispute between gallery owners and art dealers with financial interests.

To fully understand the particular controversy surrounding what may be the final ruling in the matter concerning one of Immendorff’s paintings, Ready-Made de l´Histoire dans Café de Flore, which was originally purchased at the artist’s studio in 1999, one has to take into consideration the life and work of the artist. Born in 1945, Immendorff was an artist and a political activists from an early age. Immendorff initially became famous with his series, first Café Deutschland (1977 to 1982), and later Café de Flore where he depicted himself in a number of roles surrounded by a community of intellectuals and artists. A student of Joseph Beuys (a well known artist in his own right), one of Immendorff’s  most famous works, Affenplastik, depicts Immendorff as a monkey child  being lead by Beuys. Affenplastik, also known as Malerstamm, is part of a 17-piece series of bronze sculptures and shows Beuys explaining the world with a grand gesture of his raised left arm while leading a monkey child. Explaining and understanding the world was an important mission of Beuys’; Affenplastik casts Immendorff as a willing pupil.

Immendorff was famous not only for his artworks but also for a lavish and controversial life style. In fact, according to his art dealer Michael Werner, “Joerg could not paint as fast as he wanted to spend money,” thus frequently owing money to Werner. Immendorff was known for producing copies of his own work and for selling signed copies from his workshop. He created further legal confusion by signing contradictory agreements with different galleries in addition to selling works directly from his studio during his lifetime. In 1997, Immendorff was diagnosed with amyotrophic lateral sclerosis (ALS) (also known as Lou Gehrig’s Disease), a progressive neurodegenerative disease that eventually fully paralyzed him and led to his death in 2007. As a result of his debilitating condition, during his last decade, his assistants were producing Immendorff works under the artist’s close instruction and direction. Immendorff reportedly had a reputation for strict quality control which often required numerous corrections of a single brush stroke by his assistants before Immendorff would approve a work as finished.

Following the artist’s death, his widow Oda Jaune filed criminal charges claiming that the painting Ready-Made de l´Histoire dans Café de Flore (120 x 100 cm) [Ready-Made B] which was consigned for auction in 2007 by the Defendant, was a forgery based on a painting created in 1987 Ready-Made de l´Histoire dans Café de Flore with the dimensions 150 x 175 cm [Ready-Made A]. The prosecutor’s office did not find enough evidence during its criminal investigation to lay charges and Jaune decided to pursue her claim in a private action in one of the most publicized and closely followed law suits discussed here concerning Immendorff’s painting, Ready-Made de l´Histoire dans Café de Flore [Ready-Made B] which first began in 2008 and seems to have finally been settled in court.

In its decision on August 5, 2014, the Court of Appeals (Oberlandesgericht) Düsseldorf, reversed the lower court (Landgericht) decision which had ordered the destruction of the painting.

The uncontested underlying facts were that Ready-Made B was originally purchased – accompanied by a certificate of authenticity – at Immendorff’s studio in 1999 for the price of 30,000 DM. The original purchaser received Ready-Made B from and paid the purchase price to one of Immendorff’s assistants. The original purchaser then sold the painting to the Defendant, his brother, in 2001. In 2007 the Defendant put it up for auction in Düsseldorf with the Viennese auction house Dorotheum. Once the painting had been listed in the catalogue, several discoveries were made:  i) there was a duplicate original created in 1987 owned by a collector in New Zealand [Ready-Made A], and ii) Ready-Made B had different dimensions than the 1987 version.

The Plaintiff, Oda Jaune claimed that the painting owned by the Defendant and listed in the auction catalogue – Ready-Made B- either was a forgery or was sold without Immendorff’s authorization respectively. According to the Plaintiff, in either case Ready-Made B was an unlawful propagation of Immendorff’s work and she as his heir was entitled to injunctive relief in the form of the destruction of Ready-Made B.

On October 17, 2012 the lower court (Landgericht Düsseldorf, 12 O 473/08), ruled in favor of the Plaintiff and granted the injunctive relief as requested, ordering the destruction of the painting.

The order was based on Articles 97 Abs. 1 a.F., 98 Abs. 1 a.F., 16 Abs. 1 of the German Copyright Act (UrhG). Under Article 97 UrhG, an injured copyright owner can bring an action for injunctive relief requiring the infringer to cease and desist if there is a danger of recurring acts of infringement, as well as an action for damages for intentional or negligent  infringement.  Article 98 UrhG gives the injured copyright owner the right to require destruction of all copies unlawfully manufactured, unlawfully distributed or intended for unlawful distribution in the possession of or owned by the infringer, unless such destruction is disproportionate or unreasonable.

The lower court’s opinion relies heavily on the expert opinion of art historian and Immendorff expert Siegfried Gohr who discusses the differences between Ready-Made A and Ready-Made B in great detail and determines that Ready-Made B was copied using a projector and in his opinion could have not been authorized by Immendorff, since Immendorff was not known to create a “2nd edition” of his works. Based on these factors and his personal knowledge of the artist and his work process, Gohr deemed it unlikely that Immendorff authorized Ready-Made B and stated that if Ready-Made A and Ready-Made B had been painted by the same artist he would need to resign as an art historian.

Based on Gohr’s testimony, the lower court concluded that Ready-Made B was an unlawful copy of Ready-Made A, and further held that the Defendant distributed the copy by putting it up for auction. Pursuant to Article 15 and 16 UrhG, all exploitation rights, including reproduction and distribution, lay exclusively with the author and any reproduction is generally unlawful unless there is consent or legal justification.

In the eyes of the lower court, the Defendant failed to meet his burden of proof, citing a failure to substantiate claims that he reproduced and sold Ready-Made B with Immendorff’s consent. The court also found that the destruction of Ready-Made B was proportional and not unreasonable since the infringement of the author’s rights could not be eliminated in a less drastic but similarly efficient way. The Plaintiff’s predominant interest in avoiding forgeries circulating next to the original without an obvious and easy way of distinguishing one from the other outweighs any rights or interest of the Defendant as the owner according to the lower court.

On August 5, 2014, the Court of Appeals reversed the lower court’s decision and held that Ready-Made B will not be destroyed since its distribution is lawful. The Court of Appeals found it unnecessary to decide whether Ready-Made B is a forgery since the circumstances surrounding the sale of Ready-Made B at Immendorff’s studio are to be construed as apparent consent by Immendorff as the undisputed author of Ready-Made A, to the publication and exploitation of Ready-Made B according to Article 23 UrhG. Pursuant to Article 23 UrhG adaptations or other transformations of a work may be published or exploited only with the consent of the author of the adapted or transformed work.

The Court of Appeals found that the evidence established that Immendorff knew of and had at least tolerated direct sales in his studio by his assistants. He thereby made it look like he consented to the sale and thereby the publication and distribution of works of art sold in his studio as “his“ artworks.

Since the original purchaser was protected in his trust in the apparent consent, the Plaintiff, as the artist’s heir is bound by it and is barred by estoppel, even if the assistant selling Ready-Made B may have sold a painting not authorized by Immendorff. The Court of Appeals refused to determine if Ready-Made B is a forgery or not – even though the assistant selling Ready-Made B was a witness and could have probably answered the questions by whom, when and how exactly the copy was made once and for all. The Court of Appeals even goes as far as admitting that it has doubts regarding the authenticity of Ready-Made B and the accompanying certificate of authenticity, however the appearance of consent based on the totality of the circumstances is sufficient to prevent Jaune from succeeding in her claims.

Courts are historically uneasy when it comes to answering art related questions since they have to rely on expert testimony and the conflicting parties usually find experts with conflicting testimonies, whereby a battle of the experts ensues.

In this case, however, the Court of Appeals decided to allocate the risk with the seller. While the art market and its participants are often blamed for not following basic legal standards or neglecting to perform due diligence, a purchaser may feel rightfully justified in her reliance in the authenticity of a work of art when the purchase is made directly from the artist’s studio and is accompanied by a certificate of authenticity. According to the Court, it is just to allocate risk of selling a fake with the artist in the instances where there are no aggravating circumstances, which would raise concerns in a well-informed objective purchaser. A possible aggravating circumstance would be, for example, a widely reported fact that the artist does not engage in direct studio sales.

The uncertainty whether the question regarding the authenticity of this and other works by Immendorff will affect the market value of his entire oeuvre remains. The current risk allocation seems to invite a decline in market value across the board due to the fact that the court may have “created” new Immendorff works by labeling every artwork an “Immendorff” that was sold directly from the artist’s studio.

Given that the art market is unpredictable and is subject to many influences, not the least of them aesthetic taste and fashion, legal decisions with a potentially large impact on the art market end up having little or none of the expected effect. It remains to be seen how Ready-Made B does compared to other Immendorff works if and when it is offered for sale again.

In conclusion the old age “caveat emptor” is not the only lesson for the art world. In this case the Court of Appeals sided with the purchaser specifically because the seller, in this case artist, did not do enough to protect his legacy but instead potentially endangered it by his own actions.


  • Henri Neuendorf, “Lawsuit Erupts Over 400 Jörg Immendorff Works” Artnet
  • Benebelte Affen, http://index-magazin.com/online/benebelte-affen/
  • Article 17 Section 2 UrhG
  • Article 23 Urhg

About the Author: Steffanie E. Keim is admitted to the bar in New York and Germany and is practicing law and pursuing her interest in art law in New York. She may be reached at 917-669-2514 or steffanie.e.keim@hotmail.com

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Case Review: United States v. Twenty-Nine Pre-Columbian and Colonial Artifacts, From Peru

By Chris Michaels*

Screen shot 2014-10-06 at 12.52.16 PM

An example of a Pre-Columbian Peruvian artifact, which is not related to the above-mentioned case, that is currently for sale at the Artemis Gallery in Colorado is pictured below.

Screen shot 2014-10-06 at 12.51.59 PMMiami has long operated as a market for stolen cultural objects. The high-profile case of Henri Matisse’s “Odalisque in Red Pants,” which was recovered in Miami in 2012, is a prime example of Miami being one of the top destinations for hot cultural objects. On 11 September 2014, an Order out of the Southern District of Florida addressed a Motion filed in U.S. v. Twenty-Nine Pre-Columbian and Colonial Artifacts From Peru, which shed more light on the illicit cultural heritage trade that pervades South Florida. The recent Order, issued by U.S. District Judge Joan A. Lenard, allowed the United States government to pursue a claim for the forfeiture of artifacts illegally exported from Peru.

The property in dispute in the U.S. v. Twenty-Nine Pre-Columbian and Colonial Artifacts From Peru case arrived in Miami in 2010. Jean Combe Fritz, a citizen of Peru, was caught at Miami International Airport on 21 August 2010 with thirty-two ancient artifacts stashed in his luggage. The artifacts included bone carvings, ornaments, and Inca burial bundles. Upon initial examination by officers of the United States Custom and Border Protection (“CBP”), Fritz told the officers that he intended to send the artifacts to his aunt in San Francisco. After more extensive questioning, however, Fritz admitted that the artifacts were to be distributed to three people, whose names Fritz received from his father.

The artifacts were seized by the CBP, submitted to Dr. Carol Damian, the Director of the Patricia and Phillip Frost Art Museum, for further examination and subsequently identified as archeological and ethnological material from Peru. The U.S. then submitted detailed photos of the artifacts to the Minister Counselor of the Embassy of Peru, Luis Chang, who in turn notified the United States government that the artifacts were indeed a part of the Peruvian cultural heritage and, as such, governmental authorization was required to export the items. For these particular items, Chang noted, no such authorization was provided.

The United States moved for forfeiture of twenty-nine of the thirty-two artifacts under sections 2601-2613 of the Cultural Property Implementation Act (“CPIA”), which addresses the illicit trafficking of cultural property. In this complaint, the United States argued that the artifacts were produced by indigenous tribal people in Peru during the Pre-Colombian or Colonial periods, the artifacts are important to the cultural heritage of the Peruvian people, and that the artifacts were subject to export control by Peru.

Another three artifacts were seized by the United States as stolen cultural property under 19 U.S.C. §1595a. In the complaint, the United States argued that these artifacts were illegally introduced into the United States because they were stolen, smuggled, or clandestinely imported or introduced. Based on the Order alone, it is unclear why two separate actions for the artifacts were commenced, but both were challenged by Fritz in a Motion to Dismiss, which sought dismissal for lack of subject matter jurisdiction, failure to state a cause of action, and lack of due process of law.

In denying the Motion to Dismiss, the Court first addressed the novel issue raised by Fritz’s attorneys of whether the Court of International Trade (“CIT”), which is based in New York City, has exclusive jurisdiction over actions that arise out of any law providing for embargoes. The District Court noted that the CIT has exclusive jurisdiction over civil actions commenced by the United States arising out of import transactions concerning civil penalties, the recovery of a bond, or the recovery of customs duties. Therefore here, the Court correctly reasoned that the CIT did not have jurisdiction over the two actions because they involved criminal forfeiture of property. Thus, District Court retained jurisdiction over the cases.

The Court also denied the Claimants argument to dismiss the cases for the United States’ alleged failure to state a claim. With respect to the first case involving a forfeiture action under the CPIA, the Court noted that the United States has the burden to show that the artifacts have been listed by the Secretary of the Treasury on a designated list. The burden then shifts to the claimant to show that the artifacts were legally imported. If the claimant cannot prove legal importation, the artifacts are seized and offered for return to the State Party. In this case, the Court stated that the United States successfully demonstrated that the artifacts were of Pre-Colombian “remains… metal objects, and textiles.” Further, the Court noted that the Claimant failed to show that the artifacts were legally imported. As such, the Court found that the United States would likely be able to meet its burden of proof regarding the CPIA claim.

As for the forfeiture action involving the other three artifacts, the Court found that there was probable cause to believe that the Claimant clandestinely introduced the artifacts into the United States illegally. Accordingly, the Court denied the Motion to Dismiss on the failure to state a claim issue.

Finally, the Court dismissed the argument that the Complaints should be dismissed based on a denial of the due process argument. The Court ruled that because Fritz was provided notice of and the opportunity to protest the detention of the artifacts, he could not claim that he was denied due process.

Reasoning in this ruling brings to light some of the procedural aspects of cases involving stolen cultural heritage objects that find their way to Miami and potentially other ports of entry into the United States. By denying the Motion to Dismiss and allowing the United States to proceed with the forfeiture cases, the Court has laid another brick in the wall that closes off Miami from Latin America as a destination and illegal market for these kinds of stolen artifacts. While the ruling is not groundbreaking in terms of its application of law, it is noteworthy as a step in the right direction for the resolution of cultural heritage cases in United States Courts.


About: Chris Michaels is a litigation attorney in the Philadelphia office of the Atlanta, GA-based law firm, Cruser & Mitchell, LLP, where he actively pursues his interest in the field of art law. He may be reached at (518) 421-7238, chriswmichaels@gmail.com, or on Twitter @CMichaelsartlaw.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Boston Raphael: Legal Art History

20140311143536713_0001By Belinda Rathbone*

In 1969, my father, Perry T. Rathbone, then Director of the Museum of Fine Arts, Boston (the MFA or the Museum), bought a previously unknown painting by Raphael from an elderly art dealer in Genoa. Attributed to one of the great artists of the Italian Renaissance, this portrait of a young girl was to be the crown jewel of the MFAs centennial year: 1970. But questions about the legitimacy of its exportation from Italy, compounded by widespread doubts about its attribution to Raphael, almost immediately turned this celebratory event into a tragic fiasco. For my father, it spelled the unraveling of his distinguished thirty-two year career as a museum director. In the then emerging field of art law, the Boston Raphael became a landmark case.

At the time, Italian export laws established in 1939 stipulated that any work of art considered an important piece of the nations cultural heritage could be exported only after the state itself was given a two-month option to acquire it.  Furthermore, if the right was not exercised, a hefty 30% export tax was imposed on any potential buyer from outside of Italy.  This law effectively paralyzed the Italian art trade for important works, and the Art Dealers Association of Italy fought the export tax for years, without success. However, an unknown or unpublished work stood a reasonable chance of legal export. Though technically speaking an important work of art, whether known or not, should have been registered with the Italian government, it was unusual for private owners to volunteer such information. The result was that countless works of art in private hands remained unregistered, including the Boston Raphael. Dealers and foreign collectors alike took advantage of this gray area of the law; while they weighed the odds, the only certainty they could rely on was that once the object was safely outside Italy, Italian law did not apply. As explained by art law specialist John Merryman in Law, Ethics, and the Visual Arts, although the offended nation could punish the smuggler, if it could catch him, and might have the power to confiscate the illegally exported article if it should be returned to the national territory, it could not expect the foreign nation to punish the smuggler or seize and return the object. With the Museum Boards approval, Rathbone agreed to pay art dealer Ildebrando Bossi $600,000 for the painting, drawing on the previously untapped Charles Bayley Fund, which was earmarked for the purchase of an important painting.

Unfortunately for the MFA, contemporaneously with the acquisition, Italys top art sleuth, Rodolfo Siviero [1911-1983], was looking for a high profile export case to burnish his diminishing reputation before he retired. Almost as soon as the picture was unveiled in Boston, Siviero began his investigation into its source, working through a network of art historians in Italy. Before long he had traced the picture to Bossi in Genoa, who already had a reputation for illicit art smuggling. Siviero also began to question the U.S. Customs agents to track the paintings recent arrival in Boston. At the same time, as if there was not enough for the Museums administration to worry about, experts on both sides of the Atlantic began questioning the paintings attribution to Raphael.

With scandal looming, Rathbone and the trustees of the MFA were now faced with a dilemma: how to quell both Sivieros accusations of smuggling, as well as questions from U.S. Customs agents who had been consequently alerted. Seeking legal counsel, they hired the Washington D.C. law firm of Covington & Burling (Covington), whose lawyers at first reassured them that they had operated within the law. What they did not know at that time was that MFA curator Hanns Swarzenski, who had hand carried the picture to Boston from Genoa, had neglected to declare it when he came through customs in September 1969. While there was and still is no import duty to pay on an object over 100 years old, the painting should have been declared. This technicality, which under regular circumstances would have been considered a minor omission, would end up costing MFA its first and only Raphael.

On the morning of 7 January 1971, U.S. Customs agents, armed with a search warrant, entered the Museum without warning and seized the painting. Because of its fragile nature and the below freezing temperatures outside, the MFAs head conservator was able to persuade them to leave it in the Museum in a vault under the customs seal. One week later a registered letter arrived from U.S. Customs informing the Museum that it was liable for a penalty of $1,200,000 (the estimated domestic value of the painting, even though the penalty twice exceeded what MFA paid in the end) for Swarzenskis  failure to declare the painting at Customs in violation of the provisions of section 1497, Title 19, United States Code. Soon afterward Rathbone and Swarzenski appeared before a grand jury in Boston to determine if they had conspired to defraud the U.S. government.

Meanwhile lawyers from Covington in collaboration with Ropes & Gray in Boston hammered out a nine-page petition for the mitigation of fines and release of the painting from Customs, arguing that The penalty proposed is extremely severe, particularly when the government has no revenue at stake such disastrous consequences should not be visited upon the museum because of the failure of one employee to declare a non-dutiable painting.

The fine was reduced from $1.2 million to $5000, and no indictment was returned from the grand jury. No treaty existed requiring the U.S. to return the painting, an action that could only be considered as an act of generosity. The UNESCO convention of 1970, which the U.S. had joined other signatories in adopting, had broken ground on new agreements between nations on the means of prohibiting and preventing the illicit import, export, and transfer of ownership of cultural property, but these were far from codified when the picture left Italy in 1969. However, in a meeting called on short notice when Rathbone was traveling abroad in the summer of 1971, the MFA trustees voted to voluntarily return the painting to Italy.

Soon after a formal agreement between the MFA trustees and assistant U.S. Treasury secretary Eugene Rossides, the painting was escorted on a flight to Rome in September 1971, and received by the triumphant Siviero. The MFA was never reimbursed for the money they had already spent on the painting, about $350,000 USD, for another unfortunate piece of timing was that the elderly Genoese art dealer, Ildebrando Bossi, died in prison awaiting trial for illegally exporting the Raphael. The Italian government had seized his assets and apparently felt no obligation to refund the MFA.

Many questions remain about this curious case. Most importantly: was the painting an authentic Raphael, and therefore an important piece of Italys cultural heritage? Based on its consignment to storage in the Uffizi Gallery in Florence since the early 1980s, it would not seem so. Were the MFA Trustees meeting their fiduciary responsibility in returning the disputed painting with no promise of a return on their investment, and its attribution in question?

The case of the Boston Raphael served to heighten awareness of the need for more consistent policies between nations on the export of works of art. The UNESCO convention of 1970 sought to reconcile values of cultural property and the promotion of free trade, breaking ground for bilateral or multilateral agreements on the export laws pertaining to works of art and antiquity. In recent years high profile cases involving illegally excavated antiquities bought by American art museums have brought these issues to the foreground and led to a more vigilant regulatory environment. The Boston MFA is one of the few museums to employ a full time provenance researcher and earlier this year the Museum announced that it would be returning eight antique sculptures to Nigeria after confirming that they had been stolen before making their way onto the United States art market and acquired by the Museum.

About the Author: Belinda Rathbone is a biographer and fine arts journalist. She is the author of Walker Evans: A Biography, and The Guynd: A Scottish Journal.

For the full story of the Boston Raphael read her forthcoming book, The Boston Raphael, Boston: David R. Godine, which reviews the circumstances behind the acquisition and return of the painting, the various conflicting motivations behind the key players in the episode, and the questionable inevitability of its outcome.

Case Review: Karlsson v. Mangan

By Chris Michaels*

On 11 June 2014, Plaintiff Anders Karlsson filed a case in the Central District of California against various individuals and entities alleging that they set up fraudulent investment schemes involving fake or forged artworks, attributed to Pollock and de Koonig, as well as breached their fiduciary duties to Plaintiff regarding his investment in a luxury yacht. The Plaintiff, Anders Karlsson, is engaged in mining, procuring, and wholesale and retail purchases and sales of boutique, minerals, fossils, gems, and natural history items. The named defendants are, John Leo Mangan III, Michael William Force, Taryn Burns, Jovian “John” Re, Leslie James, and the entities Art Possible, LLC, Art Force, LLC, and Raven Art, Inc.

In the Complaint, Karlsson alleges that his former personal friend of nineteen years, Defendant Leslie James, became aware that Karlsson was about to generate substantial sums of investment capital through the sale of an interest in one of his companies. The Complaint states that, armed with this information, Defendant James and the other Defendants conspired and acted in concert to defraud Karlsson through the use of fake and/or forged artworks.

The first claim in the Complaint involves the alleged breach of a Joint Venture Agreement (“JVA”) between Karlsson and Defendants Raven Art, Inc., Mangan, and Force. Pursuant to the JVA, Karlsson purchased a Jackson Pollock painting for $1,000,000, in which Karlsson maintained a 23.5% interest. The Raven Art Defendants represented the Pollock to be authentic and, according to Karlsson, he relied on their representations when purchasing the painting. Under the terms of the JVA, the painting was not to be moved from storage in Long Island City, New York without Karlsson’s written consent nor without insurance approved by Karlsson. Additionally, the JVA stipulated that painting was not to be sold for less than $30,000,000.

Karlsson maintains that, in spite of the terms of the JVA and in breach thereof, the painting was, in fact, moved without his consent and without the requisite insurance to an expert chemical art researcher in London, England. While the Complaint does not specifically state why the painting was moved to the researcher, it appears that the move was to have the researcher confirm the authenticity of the painting. In addition to the breach of contract claim on this issue, this claim of the Complaint also notes that Karlsson now has legitimate issues regarding the authenticity, provenance, and true value of the painting.

In the second claim, Karlsson maintains that he paid Defendant Re, identified in the Complaint as a “major source” of renowned artworks, $793,000 for twenty-one artworks. The artworks were represented by Re, Art Force, and Art Possible to Karlsson as being genuine and authentic works, with documented valid provenance. Of the twenty-one works purchased, three of them were Jackson Pollock paintings. Karlsson states that works were purchased pursuant to “earn-in” contracts, under which the Re, Art Force, and Art Possible were required to perform services to authenticate the artworks. To date, Karlsson asserts that no authentication services have been performed by the Defendants and, in fact, Karlsson claims that at least four of the works are fake: all three Pollock paintings and a Max Ernst sculpture. Karlsson maintains that the Defendants had knowledge of the fakes, and also states that some of the remainder of the artworks purchased also appeared to be fakes and/or with falsified provenance. Among other things, Karlsson is seeking declaratory relief on the issues of authenticity, provenance, and the true value of the Re supplied artworks.

The third claim of the Complaint deals with another earn-in contract whereby Karlsson purchased works from the Art Force Defendants for $695,000. Similar to the second claim, Karlsson states that he was coerced to buy the works, including a John Fernely, Sr. oil on canvas, because of representations made by Art Force that the works were authentic. Karlsson now claims that the works are fakes and he believes that the Art Force defendants knew of their falsity before the sale.

The fourth claim of the Complaint involves another earn-in contract issue, this time between Karlsson, Art Force and Art Possible, wherein Karlsson purchased nine artworks and agreed to provide the capital, time, and effort to arrange for repair and restoration of the works. As stated in the Complaint, Karlsson now believes that at least five of the nine artworks are fakes and the other four are of uncertain authenticity.

The fifth claim in the Complaint, solely against Defendant Leslie James, alleges breach of contract, fraud in the inducement, and theft and conversion, among other causes of action. In this claim, Karlsson claims that James bought several fake Picasso artworks from the Art Force Defendants in order to include them in a compendium of works that James is self-publishing. As James was compiling works to include in his publication, Karlsson delivered to James a collection of twelve paintings by Gaston Longchamps to be photographed for inclusion. Karlsson claims that James returned eleven out the twelve paintings and is now refusing to return the last painting.

Additionally, Karlsson asserts here that he personally loaned James $75,500 and James provided two paintings as collateral: a Pollock painting and a de Koonig painting. When Karlsson demanded repayment of the loan and James refused, Karlsson paid to have the paintings authenticated by art experts. The results of those authentication efforts were negative and, when Karlsson informed James of the results, James demanded their return so that they could be sold. Karlsson now alleges that James never intended to sell the paintings and states that they are now displayed in James’ publication as authentic paintings.

Finally, the last claim of the Complaint avers that Defendants Art Possible, Mangan III, and Force induced Karlsson to purchase a yacht for a price that far exceeds its fair market value and that is less than the value represented to Karlsson by the Defendants.

Through the Complaint, Karlsson is seeking, among other things, compensatory, special and actual, consequential, and punitive and/or treble damages. Karlsson is also seeking injunctive relief to compel specific performance of the various agreements outlined above.

Interestingly, in the claims associated with the alleged fake and/or forged artworks, Plaintiff alleges he is entitled to declaratory relief as to the issues of authenticity, provenance, and true value of the artworks. Through this call for relief, it appears that Plaintiff is requesting the court to definitively rule on the authenticity of the works even though Plaintiff is stating that, for the majority of the works, the requisite provenance research and authentication efforts have yet to be performed. It seems likely that the expensive and lengthy process of determining the authenticity of these works will need to be performed by a third party before any determination is made.

Plaintiff is represented by Meir J. Westreich of Pasadena, CA.


  • Complaint, in Karlsson v. Mangan III, C.D. Cal., Filed on June 11, 2014).

About: Chris Michaels is a litigation attorney in the Philadelphia office of the Atlanta, GA-based law firm, Cruser & Mitchell, LLP, where he actively pursues his interest in the field of art law. He may be reached at (518) 421-7238, chriswmichaels@gmail.com, or on Twitter @CMichaels88.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Mr. Corcoran and the Trustees: The Corcoran Gallery of Art, a petition for Cy Pres, and the fate of an institution

Screen Shot 2014-07-25 at 10.19.23 AMBy Caroline Camp

The Corcoran Gallery of Art in Washington, D.C. began as the private art collection of Mr. William Wilson Corcoran (1798-1888). In the mid-19th Century, Corcoran would host public viewings of his collection but, given the growing number of artworks and visitors, he decided to create a formal structure to support the collection and his own personal mission of promoting the arts. In 1869, he executed a Deed of Trust with the charitable purpose of maintaining an institution in D.C. dedicated to art and “encouraging the American genius.” The trustees obtained federal charter and later, in 1890, established what is now the Corcoran College of Art + Design in a further effort to fulfil the intent of Mr. Corcoran’s original Deed.

Fast forward to 2014, nearly 150 years after Mr. Corcoran created this institution. According to the Corcoran’s website, the public Gallery holds over 16,000 artworks and the College has 615 undergraduate or graduate students enrolled. Although these figures look healthy, the institution’s corresponding financial figures appear less so. Currently, the fate of the institution hangs in the balance between two competing forces – Mr. Corcoran’s 19th century intentions and the 21st century financial realities. A court case is pending before the Superior Court of the D.C. Civil Division to determine which force shall prevail.


In 2012, amidst rumors of financial and other struggles, the Corcoran’s trustees released a statement which acknowledged that the institution was “struggling with the effects of a difficult economy” and considering the “available options,” which included the sale of their historical home (the Flagg building). Two years later, the New York Times reaffirmed that the Corcoran was facing “Facing mounting debts, a shrinking endowment and tens of millions of dollars in renovations.” This coincided with an announcement from the trustees that the Corcoran was proposing to enter into a partnership with the George Washington University and the National Gallery of Art. Under the proposal, the George Washington University would take over the operation of the College, and the National Gallery of Art would take responsibility for the Gallery’s contemporary/modern art collections. Remaining art works would be donated to other museums.

On its face, the trustees’ proposal violates the initial charter that established the Corcoran, and seemingly runs afoul of Mr. Corcoran’s intentions behind creating the entity.  In order to proceed, the trustees must prove before federal court that the original objectives created by Mr. Corcoran are impossible to carry out and that the proposal is the closest alternative.  To do so, the trustees filed a Cy Pres petition with the Superior Court of the District of Columbia Civil Division.  “The doctrine of cy pres is an equitable remedy intended to modify a charitable use while preserving a charitable purpose,” the District of Columbia states in its response to the petition.  The District supports the petition, indicating that the proposal is necessary to keep the institution in D.C.

Not everyone supports the proposal, however.  A collection of such individuals opposed to the trustees’ proposal, including Corcoran students and employees, banded together to form Save the Corcoran.  The organization filed a twenty-page brief with legal arguments and exhibits in response to the petition, requesting a delay in the Cy Pres ruling.   In response, Judge Okun ruled on July 21, 2014 that current students and employees have legal standing to challenge the petition, but other members of Save the Corcoran do not. Proceedings were extended so that both sides could present arguments.


How should the Corcoran best realize the charitable purposes set out in a document from 1869 and the intentions of an absent founder? How should these intentions be realized in the midst of serious financial difficulties? Similar questions were posed in the contentious case of the Barnes Collection, and many commentators have noted this parallel, including Randy Kennedy at the New York Times. In that case, after several years of arguments, Mr. Barnes’ original intentions for his art collection were modified so that the Barnes Foundation could overcome financial difficulties. While Judge Okun decision was pending, University of Maryland indicated its willingness to assist with preservation of the Corcoran legacy, and offered partnership to Corcoran.

In the closing arguments on August 6, Andrew Tulumello, representing the challengers to the petition, argued “There is no historical precedent for what the trustees — who, like generations of trustees, are only temporary stewards of this institution — are preparing to do here[.]” Charles Patrizia, representing the trustees, countered that the proposal is the only way forward, and “there is no white knight” that can supply the money necessary to save the institution.

On 19 August 2014, Judge Okun approved the merger initially supported by the trustees. The Court found that “The GW/NGA proposal is the best way to effectuate Mr. Corcoran’s original intent, given the Corcoran’s current financial circumstances and the option that actually are available to the Trustees at this time.” Full opinion is available here.  No appeal expected.


About the Author: Caroline Camp, Esq., one of the founding members of Center for Art Law. She specializes in intellectual property and art law issues,Screen Shot 2014-07-25 at 10.19.23 AM and she can be reached at carovcampATgmail.com.

Knoedler Obituary (1857 – 2011): Select Legal History of the Oldest American Art Gallery

By Irina Tarsis*

What we call the beginning is often the end. And to make an end is to make a beginning. The end is where we start from. ~ T. S. Eliot

Every important art museum and private collection in the United States likely owns works of art that at one point or another, or more than once, sold through one of the oldest and finest American art galleries, Knoedler & Co (the Gallery). A tour through the annals of case law also uncovers many a Knoedler references, from matters under review by the United States Tax Court to illegal wire-tapping hearings, from the United States Customs Court citations to nineteenth century unfair competition conflicts, from World War II looted art to Soviet nationalization title disputes, from warranty breaches to racketeering, and fraud.

The rise and demise of the Gallery span three centuries. It was established by Michael Knoedler and members of a French firm Goupil, Vibert & Cie (later Boussod, Valadon & Cie) in 1848, well before the founding of the major museums in the United States. In 1857, Michael Knoedler bought out the Gallery from his French partners and shifted from selling French Salon paintings to providing old master paintings to the American art market. In 1971, the Gallery was acquired by Armand Hammer, a clever businessman and the founder of The Armand Hammer Museum of Art and Culture Center in California, who decades earlier brought valuables nationalized by the Soviets into the United States and sold books, paintings, jewels and much more in American department stores as well as antique shops.

On November 11, 2011, the Gallery suddenly announced that it was shutting down and going out of business. The apparent reason for closing this venerable institution was the sale of dozens of works falsely attributed to the high-ticket twentieth century artists such as Jackson Pollock, Mark Rothko, and Robert Motherwell. The Gallery and its principles and agents were subsequently sued for fraud, racketeering, breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment and more.

Recognized for its significance in the field, parts of the Gallery’s archives were purchased by the Getty Institute in 2012. The archive contained letters written by the preeminent nineteenth and twentieth century collectors and artists, including Léon Bakst, Alexander Calder, Edgar Degas, Greta Garbo, Paul Gauguin, Sarah Bernhardt, Childe Hassam, Winslow Homer, Rockwell Kent, Henri Matisse, Irving Penn, Mark Rothko, John Singer Sargent, and Edward Steichen.

The Gallery had been in existence for more than 160 years and its demise was a sad chapter in the American art and business history. This article will explore select cases that map a footprint the Gallery left on the American legal history.


The first legal action on record involving the Gallery, in a role of a plaintiff, dates back to 1891. Michael Knoedler tried to stop successor in interest to the French gallery from operating under the name he was using for his business. In 1887, three decades after he bought out the the New York concern, new owners of the French gallery owners opened another storefront in New York City, operating under the name of “Goupil & Co., of Paris; Boussod, Valadon & Co., successors.” The name was confusingly similar to that used by Knoedler, who has been doing business under the name of “Goupil & Co., M. Knoedler & Co., successors” since the 1850s. Nevertheless, the court held that the acts of the defendants did not “depreciate the value of the good-will of the concern bought by M. Knoedler in 1857,” and that Knoedler did not acquire “the exclusive right to use the name of Goupil & Co. as a trade designation in [the United States]”. In 1893, the Second Circuit Court of Appeals affirmed the ruling denying Knoedler’s request to enjoin the French art gallery from using the Goupil & Co business name in New York and the United States.

Next, in 1919, the Gallery protested assessment of import duties by the collector of customs at the Port of New York. In the case of M. Knoedler & Co. v. United States, 36 Treas. Dec. 63, T. D. 37898, G. A. 8229 (1919), the court considered proper classification of a bronze statue produced by Auguste Rodin. There, a board of three assessors agreed that Rodin was a professional sculptor of high order and his sculpture, imported by Knoedler, was produced (carved, remodeled and improved) by the artist. Thus the court held that the bronze statue was an ‘original’ and not subject to an ad valorem 15% fee as initially estimated. At the time the sculpture was valued at 12,000 francs.

Some of the Gallery-affiliated sales from the 1930s and 1950s would instigate legal action decades later. For example, between 1997 and in 2000, the Gallery found itself a third party defendant to the dispute between the Seattle Art Museum (the Museum) and Elaine Rosenberg, heir of Paul Rosenberg, an important Jewish art dealer in Paris, whose collection was confiscated by the Nazis during World War II. The facts of the dispute revealed that in 1954, the Gallery sold a 1928 Matisse painting, Odalisque, to Virginia and Prentice Bloedel, who bequeathed it to the Museum. The Museum took possession of the painting in 1991 and full ownership in 1996. Elaine Rosenberg sued the Museum to recover the painting, and the Museum impleaded the Gallery, alleging fraud and/or negligent misrepresentation at the time of the 1954 sale. The Gallery was able to get out of the dispute, with its costs reimbursed, by demonstrating that it was not a party to the Bloedel’s bequest to the Museum.

Ultimately, the Museum Board of Trustees decided to return Odalisque to the Rosenberg heirs in 1999, and following the return, the Museum and the Gallery reached an out-of-court agreement, whereby the Museum was able to chose “at least one painting from the inventory of the Knoedler gallery” and the Gallery waived its right to collect awarded attorney’s fees. The Director of the Gallery at the time, Ann Freedman, was quoted as saying “If there’s anything I would choose to emphasize, it’s that this settlement is larger than our specific case… Being in the world of art, this case has the potential to be part of a universal understanding and healing.”

Four years later, in 2004, the Gallery was defending itself for a sale of another painting stolen during World War II. In 1955, the Gallery sold a painting Spring Sowing by the Italian artist Jacopo da Ponte to the Springfield Library and Museum Association (the Association) for $5,000.  The bill of sale stated that the defendant “covenants with the grantee that it [is] the lawful owner of the said goods and chattels; that they are free from all encumbrances; that it have [sic] good right to sell same as aforesaid; and that it will warrant and defend the same against lawful claims and demands of all persons.” However, in 1966, the Director General of the Arts for the Italian Government wrote to the Association’s director, claiming that Spring Sowing belonged to the Uffizi, a museum in Florence, Italy. Apparently the painting was on loan to the Italian Embassy in Poland before World War II, and it went missing during the War. The Association exchanged letters with the Gallery staff and Italian officials, and while the Gallery staff acknowledged that probably this painting was the one stolen from the embassy, little action was taken until the early 2000s, when the Italian government reached out again to the Association. Following the 2001 return of the painting, the Association sued the Gallery alleging breach of contract, breach of implied warranty, fraud and deceit, negligence and misrepresentations, among other counts. The ultimate decision or the terms of a settlement between the Association and the Gallery are not public; however, the court refused to dismiss this case even though the Gallery argued that the plaintiff’s actions were time barred. In fact, the court refused to decide the case at the pleading stage, and found that the Museum may be able to argue equitable estoppel to overcome the Gallery’s time limitations argument, ruling that the statute of limitation was tolling since the 1960s.


Ann Freedman turned out to be the last of the Gallery directors. Now a principle of another art gallery at 25 East 73rd Street in New York City, called FreedmanArt, Freedman worked at the Knoedler Gallery from 1977 through 2009.

When venerable establishments like the Gallery crumble, the aftershocks tend to reverberate far and wide. The circumstances of its demise in particular, sale of numerous forgeries at high market value prices, triggered many legal proceedings. The fakes came from a single source, an art dealer named Glafira Rosales, who offered the Gallery dozens of “previously unknown works painted by important Abstract Artists.” Rosales provided only basic background about the original collector of these works, but the art world was eager to embrace a crop of fresh Pollocks, Rothkos, Klines and other prized artists. Many art experts, including curators with the leading galleries and authors of catalogue raisonnes, seasoned collectors and gallerists, such as Ann Freedman, viewed the works offered by Rosales and believed them to be authentic. As more heretofore unseen works were entering the market, Rosales fabricated provenance information, even allegedly naming Alfonso Ossorio, an artist and a collector, as a conduit from the famed artists to the anonymous collector as an explanation of their long lost status.

The too good to be true discovery of the Abstract Expressionist treasure trove was simply just that. On September 16, 2013, Rosales plead guilty to all counts brought against her, including charges of wire fraud, tax evasion, failure to file financial statements, money laundering, and more. She is facing a prison sentence of almost 100 years, revocation of her U.S. citizenship, as well as monetary penalties in excess of $80 million. Rosales is reportedly cooperating with the government, but that does nothing for the defunct Gallery.

Between 2011 and 2013, there were half a dozen legal actions started against the Gallery in the Southern District of New York, and complaints continue to materialize.  First, on December 1, 2011, Pierre Lagrange, a businessman from London, filed a complaint against Knoedler Gallery LLC and Ann Freedman, having received a forensic report that showed that the work attributed to Pollock that he purchased from the Gallery for $17 million was a forgery. In 2012, John D. Howard sued Freedman, Rosales and the Gallery, accusing them of common-law fraud, breach of warranty, mistake and RICO violations, for selling him a fake Rothko for $8.4 million.

Next, in rapid succession, the Martin Hilti Family Trust, Domenico and Eleanore De Sole, Frances Hamilton White, David Mirvish Gallery Limited, and The Arthur Taubman Trust all sued to recover their losses on forgeries the Gallery sold to them from the Rosales Collection. For example, Frances Hamilton White brought action seeking compensatory and punitive damages for the sale of a fake Pollock. Together with her ex-husband, she purchased a purported Jackson Pollock painting for $3.1 million, which has since been determined to be a forgery. In the complaint, the plaintiff submitted that she “chose to acquire art through Knoedler because of its reputation as New York City’s oldest art gallery.” She purchased multiple works for about $5 million because she and her former husband relied on the “knowledge, experience and sterling reputation” of the Gallery and its staff. The collectors tried to unwind the sale when the work was declined on consignment by an auction house because it did not appear in a Pollock catalogue raisonne. White alleged that the defendants “profited greatly from the fraudulent sale(s),” namely Rosales received about $670,000 for her “Pollock”, a price well below market value, while the Gallery and its agents kept more than $2.4 million.

The most recent complaint to name the Gallery as defendant was filed on August 30, 2013. Michelle Rosenfeld Galleries sued two collectors, Martin and Sharleen Cohen, and Knoedler Gallery LLC, because Rosenfeld felt threatened that its art sales from 1997 and 1998 were under suspicion by the Cohens. These clients allegedly requested a refund for a Pollock and a de Kooning Rosenfeld sold to the Cohens (having first purchased them from the Gallery). Rosenfeld is seeking declaratory judgment that any claim by the Cohens is barred as a matter of controlling law, that any continued pursuit of refund would be frivolous and merit compensation of Rosenfeld’s legal expenses. Lastly, Rosenfeld requests an indemnification by the Gallery against any purported liability in case the claim by the collectors proceeds.

According to Freedman, Knoedler sold about 40 paintings from the Rosales Collection. In a conservative prognosis, more suits against Knoedler are coming down the legal conveyer belt. The aftershocks of the Gallery’s demise are also leaving marks in the courts. Most recently, Ann Freedman, named defendant in some of the lawsuits, brought a legal action of her own. In Freedman v. Grassi, she alleges that another art dealer, Marco Grassi owner of Grassi Studios gallery, defamed her when his opinion of Freedman’s due diligence in investigating the Rosales Collection appeared in the New York Magazine. Grassi was quoted as saying, “It seems to me Ms. Freedman was totally irresponsible, and it went on for years… Imagine people coming to someone and saying every painting you sold me is a fake. It is an unthinkable situation. It is completely insane. A gallery person has an absolute responsibility to do due diligence, and I don’t think she did it. The story of the paintings is so totally kooky. I mean, really. It was a great story and she just said, ‘this is great.’ by stating that she did not do her due diligence.”

Freedman alleges that she was acting in good faith and with due diligence conducted research into the provenance of the Rosales Collection. She alleges that Grassi deliberately published a false defamatory statement about her to harm her reputation, and thus she seeks compensatory damages, nominal damages and punitive damages, as well as judgment interest allowable by law, attorney fees, legal costs and any other appropriate relief. Whether Freedman’s case survives pretrial motions or not remains to be seen. However, the Gallery is now figuring in association with a First Amendment and freedom of speech dispute.

Even posthumously the Gallery finds itself in a rare situation having shaped the habits of generations of collectors, going out of business with a bang and not a whisper, and having been sued multiple times. The way things are developing, it may merit the prize for the most sued art galleries of the modern times, second perhaps only to Salander-O’Reilly. However, as the Rosales conspiracy fades away, and the complete history of the Knoedler Gallery waits to be written, what is worth emphasizing is that this venerable Gallery will more likely be remembered for its avant-garde aesthetic and the authentic gems it dealt in rather than the fakes and legal disputes that marred its last chapter. Having left an indelible mark on the world of art in the United States, the Gallery’s legacy is larger than the series of recent and pending cases.

On September 30, 2013, U.S. District Judge Paul G. Gardephe ruled in de Sole and Howard actions against Knoedler Gallery, Ann Freedman, Glafira Rosales and other Defendants. The Judge dismissed all claims of wrongdoing against the gallery owner, Michael Hammer; but he denied most motions to dismiss charges against Freedman and Rosales, such as the charges of fraud, unilateral and mutual mistake, fraudulent concealment, and aiding and abetting fraud. Naturally, the court granted Plaintiffs leave to amend their complaints.


Since the scandal broke in the press, at least 10 cases have been brought against the gallery and its affiliates. The artist who is believed to have created all of the Rosales forgeries, Pei–Shen Qian, fled to China from where he had been quoted as saying that “he was duped too”.  Before the Knoedler legal saga ends, collectors should heed the warning of John Cahill, a New York-based art attorney wrote “[if] impact of the Knoedler scandal will likely have repercussions on the New York art market for years to come, it highlights one of the risks that art purchasers should now be aware of. While maintaining the confidentiality of sellers is an accepted part of the art world, the Knoedler case highlights the importance of actually knowing the identity of the consignor.”

*Note from the Editors: This article is reprinted with permission from: Entertainment, Arts and Sports Law Journal, Fall/Winter 2013, Vol. 24, No. 3, published by the NYS Bar Association, One Elk Street, Albany, NY 12207.


  • Knoedler v. Boussod, 47 F. 465, 1891 U.S. App. LEXIS 1455 (C.C.D.N.Y. 1891).
  • United States Dept. of the Treasury, United States. Customs Court. Treasury Decisions Under Customs and Other Laws, Vol. 36, Jan.-Jun.1919 (Washington, Government Printing Office, 1919) 63.
  • Schapiro v. Commissioner, T.C. Memo 1968-44, 1968 Tax Ct. Memo LEXIS 254, 27 T.C.M. (CCH) 205, T.C.M. (RIA) 68044 (T.C. 1968).
  • People v. Broady, 5 N.Y.2d 500, 158 N.E.2d 817, 186 N.Y.S.2d 230, 1959 N.Y. LEXIS 1447, 74 A.L.R.2d 841 (N.Y. 1959).
  • Ward Eggleston Galleries v. United States, 1955 Cust. Ct. LEXIS 7 (Cust. Ct. Jan. 4, 1955); Thannhauser v. United States, 14 Cust. Ct. 62, 1945 Cust. Ct. LEXIS 7 (Cust. Ct. 1945).
  • Knoedler v. Boussod, 47 F. 465, 1891 U.S. App. LEXIS 1455 (C.C.D.N.Y. 1891), aff’d, 55 F. 895, 1893 U.S. App. LEXIS 2026 (2d Cir. N.Y. 1893).
  • Springfield Library & Museum Ass’n v. Knoedler Archivum, Inc., 341 F. Supp. 2d 32, 2004 U.S. Dist. LEXIS 20438 (D. Mass. 2004); Rosenberg v. Seattle Art Museum, 42 F. Supp. 2d 1029, 1999 U.S. Dist. LEXIS 4302 (W.D. Wash. 1999).
  • James Panero, “‘I am the Central Victim’: Art Dealer Ann Freedman on Selling $63 Million in Fake Paintings,” NY Mag. (Aug. 2013) available at http://nymag.com/daily/intelligencer/2013/08/exclusive-interview-with-ann-freedman.html.
  • Press Release, The Getty Trust, “Getty Research Institute Acquires Archive of the Historic Knoedler & Company Gallery,” (Oct. 18, 2012), available at http://news.getty.edu/press-materials/press-releases/knoedler-and-company-gallery-archives.htm.
  •  Rosenberg v. Seattle Art Museum, 124 F. Supp. 2d 1207, 2000 U.S. Dist. LEXIS 7770 (W.D. Wash. 2000), aff’d, 42 F. Supp. 2d 1029, 1999 U.S. Dist. LEXIS 4302 (W.D. Wash. 1999).
  • John Cahill, “An Update on the Knoedler Law Suits” Sotheby’s (4 May 2014), available at http://www.sothebys.com/en/news-video/blogs/all-blogs/art-law/2014/06/an-update-on-the-knoedler-gallery-lawsuits.html
  • Complaint, in Freedman v. Grassi, Supreme Court of New York, Filed on Sept. 11, 2013, 1.
  • Lagrange et al v. Knoedler Gallery, LLC, 1:2011 cv08757 (S.D.N.Y. Dec. 1, 2011).
  • Howard v. Freedman et al., 1:2012-cv-05263 (S.D.N.Y. Jul 6, 2012).
  • Konowaloff v. Metropolitan Museum of Art, 702 F.3d 140 (2d Cir. 2012).
  • De Sole v. Knoedler Gallery, LLC, 2013 U.S. Dist. LEXIS 20368, 2013 WL 592666 (S.D.N.Y. Feb. 14, 2013).
  • The Martin Hilti Family Trust v. Knoedler Gallery, LLC et al., 1:2013-cv-00657(S.D.N.Y. Jan 29, 2013).
  • White v. Freedman et al., 1:2013-cv-01193 (S.D.N.Y. Feb. 21, 2013).
  • David Mirvish Gallery Limited et al v. Knoedler Gallery, LLC, 1:2013-cv-01216 (S.D.N.Y. Feb. 22, 2013).
  • The Arthur Taubman Trust et al v. Knoedler Gallery, LLC et al., 1:2013-cv- 03011 (S.D.N.Y. May 3, 2013).
  • Rosenfeld v. Knoedler Gallery, 653030/2013 (Aug. 30, 2013).

About the Author: Irina Tarsis, Esq., specializes in art law, provenance research and cultural heritage law. She may be reached at itsartlaw@gmail.com.

Disclaimer: This article presents general information and is not intended as legal advice.

Case Review: US v. Mask of Ka-Nefer-Nefer (8th Cir.)

By Angelea Selleck
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After nearly three years of legal battles between the United States government and the St. Louis Art Museum (the “SLAM”), the forfeiture case known as U.S. v. Ka-Nefer-Nefer (8th Cir. Jun 2014) has finally come to an end. Ka-Nefer-Nefer was an ancient Egyptian noblewoman during the Nineteenth Dynasty. The case was concerned with the ownership of the sacred funerary mask of Ka-Nefer-Nefer, which the SLAM purchased in good faith for half a million dollars from Phoenix Ancient Art, an international art gallery based in Switzerland with a murky past. Years following the purchase, Egyptian authorities approached the SLAM, claiming that the mask was stolen and illegally removed from Egypt. Upon this realization, the United States government attempted to seize the mask from the SLAM with a civil forfeiture action. Instead of complying with the government’s request, the SLAM sued the US government to assert their ownership. On 12 June 2014 the Eighth Circuit Court of Appeals decided that the mask would to stay in the possession of the SLAM.

Before discussing the details of the case, it is important to elaborate briefly on the process that museums undergo when acquiring an antiquity. Most museums in North America abide by the Code of Ethics set out by the International Council of Museums (ICOM) and the Association of Art Museum Directors (AAMD). The SLAM is a member of the AAMD and has adopted the principles set out in the Guidelines on the Acquisition of Archaeological Material and Ancient Art, which, among other requirements, state that museums should thoroughly research the ownership history of a work prior to the acquisition and make a strong effort to obtain all written records and documentation regarding its history. More importantly, the Guidelines also emphasize that museums should not acquire a work unless the provenance research confirms that the work was outside its country of discovery before 1970, which reflects the criteria in UNESCO’s 1970 Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property. The SLAM is not a member of ICOM however, which tends to carry more weight in ethical matters.

It is also important to point out that it is rather uncommon for museums to sue the government when asked to return an object. Patty Gerstenblith, DePaul School of Law Professor, commented that this is a very unusual response to forfeiture claims and it is the first time a public institution like a museum decided to expend its funds to proactively sue the government.  Neither the museum’s nor the government’s litigation costs have been disclosed as of yet.

The United States government claims that the mask was stolen before it was brought into the country, thereby violating the Tariff Act of 1930. The United States filed a motion based on the National Stolen Property Act (NSPA), which allows the US government to prosecute on behalf of a foreign government and defend their national ownership law. The Act serves to deter U.S. citizens from dealing with international stolen goods. The strength of NSPA was illustrated in the landmark case U.S. v Schultz, where prominent art dealer Frederick Schultz was convicted of importing and selling looted Egyptian antiquities.

In the Schultz case, the U.S. court upheld Egypt’s patrimonial law, Egyptian Law on the Protection of Antiquities Law 117, which asserts Egyptian public ownership of antiquities and restricts private possession or ownership of cultural property. This law is arguably one of the world’s clearest ownership laws and probably the most efficient route for repatriation by stating all antiquities are the property of the government. Upholding Egypt’s patrimonial laws could have been a more efficient way to return the mummy mask to its original owners.

Screen Shot 2014-08-10 at 9.50.52 PMAccording to Egyptian records, the Ka-Nefer-Nefer mask was excavated in 1952 and registered as Egyptian property a year later. It was then placed in a storage facility at Saqqara and later sent to Cairo in 1966. It was not until 1973, during a routine inventory, that museum authorities noticed the mask was missing. The Museum has no record of sale or transfer of the mask between 1966-1973. The SLAM maintains that they conducted due diligence and purchased the mask from reputable sources. Furthermore, the SLAM claims that prior to the purchase, they inquired about its provenance with the Art Loss Register, the International Foundation for Art Research, INTERPOL and consulted with the then-director Mohammed Saleh, of the Cairo Museum. All of these institutions had confirmed that this piece was licit and there were no reports of the mask missing at the time of the proposed purchase.

In order to assert their ownership of the mask, SLAM maintained that they purchased the mask in good faith and that the statue of limitations had expired when the United States filed for forfeiture. The SLAM claims that the US government received notice of the importation in 2005 but only filed the forfeiture complaint until 2011. Due to the fact that the statute of limitations in the United States is five years, and more than five years have passed, SLAM believes that they have rightful ownership of the mask. 

In April 2012, the U.S. District Court, Eastern District of Missouri, dismissed the US government’s forfeiture complaint for failing to articulate with specificity “how the mask was stolen and smuggled, or how it was brought into the United States contrary to law”. Afterwards, the US filed a motion to reconsider when the government revealed new information that could support an amended complaint. However, the Court denied this motion and the parties attempted to settle this matter out of court. The negotiations failed and US government then appealed to the Eighth Circuit Court to re-open the case . The issue raised in their appeal is whether the District Court abused its discretion in denying the government’s post-dismissal motion for leave to file an amended civil forfeiture complaint.

Oral arguments took place in mid-January 2014, during which time Circuit Court Judge James Loken held that the US government made mistakes in the eyes of the District Court and that “they will have to beg for a do-over”.  The Court resumed on 12 June 2014 where the Court of Appeals affirmed the District Court’s procedural ruling.  Judge Diana Murphy acknowledged that the lower court did not abuse its discretion when dismissing the government’s forfeiture case. Murphy also emphasized that “the government was dilatory” with their amended complaint. In addition, she included cautionary comments about the subject matter of the case:

“The substantive issues underlying this litigation are of great significance, and not only to museums which responsibly seek to build their collections. The theft of cultural patrimony and its trade on the black market for stolen antiquities present concerns of international import…

…While this case turns on a procedural issue, courts are bound to recognize that the illicit sale of antiquities poses a continuing threat to the preservation of the world’s international cultural heritage. Museums and other participants in the international market for art and antiquities need to exercise caution and care in their dealings in order to protect this heritage and to understand that the United States might ultimately be able to recover such purchases.”

While the case of the US v. Mask of Ka-Nefer-Nefer has been settled, it will be interesting to see if there will be any future diplomatic actions undertaken by either the United States or Egypt for the return of the Ka-Nefer-Nefer mask.



About the Author: Angelea Selleck is a contributing writer with Center for Art Law; she is a research intern at Iran Human Rights Documentation Center in New York.