Let’s do it again but better? Pros and Cons of Renewing the US-Italy Cultural Property MOU

by Tess Bonoli*

CPAC collage

Since January 19, 2001, the Memorandum of Understanding (MOU) between the United States and Italy has offered an added layer of protection to Italy’s cultural heritage. It was designed to regulate imports of  pre-Classical, Classical, and Imperial Roman period cultural artifacts in the United States. The MOU is in response to a request from the Italian government, pursuant to Article 9 of the 1970 UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property (the Convention). The Convention’s implementing legislation, the Convention on Cultural Property Implementation Act (CPIA), came into effect in 1983. Article 9 of the Convention empowers any State Party whose cultural patrimony is in jeopardy to call upon other State Parties who are affected to assist with curbing the illicit traffic. These bilateral agreements last five years, and may be renewed an indefinite number of times, following a petition and a review of the bilateral commitments. On February 26, 2015, the U.S. State Department announced that Italy had requested a third renewal of the MOU; this request is currently under review – with competing interests advocating for and against another term.

“Italy is blessed with a rich cultural legacy and therefore cursed to suffer the pillaging of important cultural artifacts,” stated John R. Phillips, American ambassador to Italy. The current MOU requires that the U.S. and Italy both contribute their resources to work toward the shared goal of preserving invaluable objects of cultural and historical importance. The U.S. is responsible for restricting importation of materials on the Designated List (including categories of stone, metal, ceramic and glass artifacts, and wall paintings); upon the recovery of such materials, returning them to Italy; and providing public notice of the items on the Designated List. In turn, the Italian government is obligated to increase scientific research; guard archaeological sites that are known to be at risk from looters; develop Italian tax incentives for private support of legitimate excavations; institute more severe penalties for looters; regulate the use of metal detectors; provide ongoing training for the Italy’s national military police, the Caribinieri, etc. In 2010, Italy also agreed to facilitate U.S. access to its art and artifacts through long-term loans, permitting scientific analysis of those materials, by encouraging American museums and universities to participate in Italian excavations, and by promoting exchange and study abroad programs. Both countries further agreed to launch joint efforts to strengthen cooperation from other Mediterranean nations, publicize the terms of the MOU, and examine more ways to facilitate the legitimate export of items sold within Italy.

Since its inception, the MOU has guided the successful recovery and return of statues, sculptures, architectural fragments, weapons and armor, vessels, coins, wall paintings, and inscriptions. In May 2015, U.S. Ambassador Phillips generalized that the joint efforts of American agents and Italian investigators had “borne fruit in returning some important artifacts to their rightful home in Italy.”

Noteworthy returns that occurred in 2014 and 2015 have included objects recovered from American museums, auction houses, galleries, private collections and universities. For example, Giovanni Battista Tiepolo’s painting, “The Holy Trinity Appearing to Saint Clement,” was stolen from a private home in Turin in 1982 and discovered in a Christie’s online catalogue in January 2014. An Etruscan bronze statuette of Hercules, stolen from a museum in Pesaro in 1964 was recovered from a New York City gallery in October 2014. Pompeian frescos and a dog-shaped askos, looted from Pompeii in 1957, were recovered from a San Diego warehouse in February 2015. An Etruscan black figure vase with dolphins was seized from the Toledo Museum of Art, after it was revealed that antiquities dealer Giacomo Medici presented false provenance documentation to the museum. The Minneapolis Institute of Arts acquired an Attic red-figure vase from Medici, which was recovered after U.S. authorities learned of its falsified provenance. Three rare 17th century books, which were stolen from the National Historical Library of Agriculture in Rome and distributed among a private collector and Johns Hopkins University, were seized and returned to Italy. A second century sarcophagus lid depicting a sleeping Ariadne was recovered from a New York gallery and returned in 2015. Interpol, the International Criminal Police Organization,“estimates that the stolen art and cultural property market produces more than $9 billion in profits each year, and it’s the fourth most profitable black market trade after human trafficking, narcotics and weapons.”

Despite the undeniable success achieved by the MOU’s joint efforts, another five-year renewal is not guaranteed. On April 8, 2015, the U.S. State Department Cultural Property Advisory Committee (CPAC) met in open session (full list of attendees and CPAC members is available here) to discuss the renewal of the Italian MOU, with Patty Gerstenblith presiding. Peter Tompa, one of the presenters before the CPAC, speaking on behalf of the International Association of Professional Numismatists and the Professional Numismatists Guild argued against the renewal; he explained “import restrictions were never meant to be permanent. Rather, they were aimed at cutting market demand to allow time for a source country to get its own house in order.” Moreover, others doubted the practicality of returning such artifacts to Italy. Sue McGovern-Huffman, of the Association of Dealers and Collectors of Ancient and Ethnographic Art, asserted that “restrictions have been detrimental to collecting.  Over time, this will negatively impact museums that benefit from donations from collectors.  Import restrictions disadvantage American collectors versus those in the EU.” While McGovern-Huffman fully supports the MOU’s goal of preventing the illegal removal of cultural objects from Italy, addressing the CPAC she emphasized the vital role that U.S. art collectors and museums have played in the preservation and study of artifacts. She also cautioned that the current MOU severely inhibits the ability of private collectors in the U.S. to aid in such preservation and suggests that less restrictive means can be employed to achieve the goal of protecting Italian artifacts, without leaving U.S. collectors and museums at a disadvantage. Others echoes McGovern-Huffman’s concerns, and warned that the MOU’s rigid restrictions would “destroy the historically close relationship between advanced collectors and museums and inevitably impact donations of coins to numismatic institutions…likely to result in a drastic reduction in numismatic scholarship.” The Designated List, as McGovern-Huffman noted, includes common archaeological objects that “possess no special or rare features” and, because such items are so prevalent, they “cannot be realistically deemed of specific cultural, historical or scientific importance to the republic of Italy.”

In addition, concerns have been raised about whether the Italian government has been fulfilling its responsibilities under the MOU. According to Tompa, “in prior MOUs, Italy pledged to consider ways to make it easier to secure export certificates for archaeological objects legitimately sold within Italy itself. Unfortunately, nothing has been done to keep this promise, and, if anything it has become more difficult to procure them.” Attorney, Stephen Knerly, representing the Association of Art Museum Directors, stated “Italy has not lived up to its promises in the MOU to provide long-term loans. The only museums to get long-term loans are those that receive them as a quid pro quo for repatriation of artifacts.” Knerly emphasized that, even when U.S. museums do receive artifact loans, they are personally responsible for the expensive courier and insurance fees, as “Italy will not accept US State Department guarantees of indemnity and requires American museums to purchase insurance from Italian companies.”

Despite these concerns, supporters of the renewal, including Ann Stock, the U.S. Assistant Secretary for Educational and Cultural Affairs, explained that the MOU was necessary to combat an ongoing struggle and that “[t]he cultural heritage of Italy continues to be in jeopardy from pillage of archaeological material.” Professors Jane DeRose Evans, Alex Barker and Carla Antonaccio, all give the MOU unqualified support. Barker, whose university collaborates with programs at Rome’s Capitoline Museum, insisted that all legal requirements on Italy’s behalf have been met for a renewal of the MOU. Antonaccio explained that Italy was doing the best it can, despite a severe budgetary crisis. Finally, addressing the arguments raised by the numismatic collectors, Evans indicate that “locals and collectors and dealers should be educated to discourage looting. Even common coins have value.”

As the U.S. and Italy plan to decide on the fate of the renewal of the MOU by January 2016, these two nations will need to balance their individual concerns, regarding the conservation of their resources and their own access to the artifacts, with the overarching need to find the most effective means to facilitate the preservation of cultural objects and dissemination of knowledge. The U.S. and Italy may find that their solution is to amend the MOU prior to renewing it, as the parties did with first renewal in 2006 and the second renewal in 2011. Reducing import restrictions on coins, mandating a certain volume of annual artifact loans to U.S. museums and educational institutions, and removing particularly prevalent, nondescript items from the Designated List are all amendments that would quell U.S. concerns while continuing to aid the Italian government in protecting its cultural objects.

Since the adoption of the CPIA 32 years ago, 15 nations have reached MOUs with the United States, including Belize, Bolivia, Bulgaria, Cambodia, China, Colombia, Cyprus, El Salvador, Greece, Guatemala, Honduras, Italy, Mali, Nicaragua, and Peru. Consequently, collectors of antiquities in the U.S. have felt their opportunities shrinking as protections increase and restrictions mount; however, these MOUs has proven themselves to be a meaningful mechanism for safeguarding the world’s cultural patrimony.

Selected Sources:

About the Author: Tess Bonoli is a rising third-year law student at Brooklyn Law School. She received a B.A. in Classics, Latin, and Italian from Tufts University. She may be reached at tessbonoli@gmail.com.

Disclaimer: This article is for educational purposes only and is not meant to provide legal advice readers are not meant to act or rely on the information in this article without attorney consultation.

Hold your Horses: Art Authenticators Not Protected Yet

By Irina Tarsis, Esq.*

Screen Shot 2015-06-01 at 3.01.42 PMOn June 15, 2015, New York State Senate passed a revised version of the Bill S01229A intended to amend the New York Arts and Cultural Affairs Law  by adding a provision intended to encourage art historians to offer their opinions concerning authenticity, attribution and authorship of works of fine art.

The proposed amendment is intended to protect art authenticators in the visual arts community from the risk of civil action suits. Why is this group in need of special protection? It is because the risk is real: those who opine on authenticity of artworks are increasingly threatened with legal action by the outraged/indignant collectors whose dreams of owning (and selling a masterwork) are dashed by the professional and expert opinions of authenticators.

Screen shot 2015-07-01 at 10.19.32 AMWe and others have reported on the plight of art authentication committees previously and together we are waiting to see our Google Alerts announce the passage of the New York State proposed law that would grant protection to the authenticators. This Bill has been in the works for years, a more robust version having been introduced without success back in 2013. Despite all the anticipation, as of July 1, 2015 the law has not passed yet, though some headlines have been suggesting or hinting otherwise. See for example “Art Authenticators Harassed by Lawsuits and Death Threats Get New Legal Protection” and “New York Senate Passes Bill to Protect Art Authenticators.”

Having some version of the Bill pass the New York Senate is a promising first step, but the battle is far from over. The New York Assembly has to vote in favor of the Bill as well. As of June 26, 2015, the first half of the 2015-2016 Session of the New York State Legislature is in recess. It is unclear at this time why the amendment was not brought up for a vote in the Assembly between the 15th of June and the 26th of June last month. However, unless the Speaker of the New York State Assembly, Carl E. Heastie, calls for a special session, the New York Assembly members will not return to vote on any of the pending bills until sometime in 2016. While the Assembly version of the Bill, A01018A, will not need to be reintroduced at that time (the Bill number remains unchanged for the entire two-year cycle), the Bill sponsors will have to bring it for a vote. If and when the Bill passes both houses, it will be presented to the Governor, Andrew Mark Cuomo, to either sign or reject. In the case of latter, sponsors of the Bill would need to go through yet another round of edits, introductions, lobbying, etc., etc.

The earliest the current Bill could be enacted in New York, if it is approved in the 2015-2016 Session and promptly endorsed by the Governor, is “the sixtieth day after it shall have become a law.” Then and only then, will “all [good faith] opinions as to the authenticity, attribution or authorship of a work of fine art provided to someone other than the authenticator” will be afforded protections “to ensure that only valid, verifiable claims against authenticators are allowed to proceed in civil court.” (See the full text of the proposed bill for details.)

Indeed, the law is anticipated to have an extraterritorial reach for art authenticators. For example, individuals outside of New York State would be able to contract for New York State law to govern any disputes arising from the agreement to review authenticity of an artwork. However, for now, and until January 2016, there is no change in circumstances and art authenticators remain exposed to litigation and to the ire of art holders seeking affirmation that they struck gold and not pyrite.

* * *

The full text of the proposed bill is available here. Following are some of the sections from the Bill (with our editorial underlining) and excerpts from the Legislative Memo justifying the passage of the law:

Act to Amend New York Arts & Cultural Affairs Law:

IN ANY CIVIL ACTION BROUGHT AGAINST AN AUTHENTICATOR, … , THAT ARISES FROM OR RELATES TO THE AUTHENICATOR’S [SIC] OPINION OR INFORMATION CONCERNING A VISUAL ART MULTIPLE OR WORK OF FINE ART, THE CLAIMANT SHALL SPECIFY WITH PARTICULARITY IN THE COMPLAINT FACTS SUFFICIENT TO SUPPORT EACH ELEMENT OF THE CLAIM OR CLAIMS ASSERTED. (NY Arts and Cultural Affairs Law Section 15.12).

IN ANY CIVIL ACTION BROUGHT AGAINST AN AUTHENTICATOR … THAT ARISES FROM OR RELATES TO THE AUTHENTICATOR’S OPINION OR INFORMATION CONCERNING A VISUAL ART MULTIPLE OR WORK OF FINE ART, THE COURT MAY ALLOW THE PREVAILING AUTHENTICATOR THE COSTS OF THE ACTION TOGETHER WITH REASONABLE ATTORNEYS’ AND EXPERT WITNESSES’ FEES, PROVIDED, HOWEVER, THAT NO SUCH COSTS OR FEES SHALL BE MADE PURSUANT TO THIS SECTION EXCEPT UPON A WRITTEN FINDING OF GOOD AND JUST CAUSE, WHICH SHALL SPECIFY THE GROUNDS THEREOF. (NY Arts and Cultural Affairs Law Sec. 15.15 (4)B).

Justification:

In general, artwork is authenticated by a trained person through documentation, stylistic inquiry, and/or scientific verification. No one method is perfect as oftentimes authenticity is difficult to determine. While each authentication method has its own drawbacks, the role of authenticators as drivers of the art market cannot be overstated. Art authenticators reduce the risk of counterfeits and imitations flooding the art market that could potentially devalue the work of millions of artists.

In recent years, the work of authenticators has come under pressure from meritless lawsuits against those who render opinions in good faith. Such defense of expensive and frivolous lawsuits have left many in the industry reluctant to lend their expertise in authenticating art works.

Select Sources:

About the Author: This editorial is by Irina Tarsis, art lawyer and Founder and Director of Center for Art Law.

WYWH: Review of “Murder to Museums: Recent Cases and Ethical Considerations in Nazi Looted Art”

By Debra S. Friedmann*

On June 17, 2015, the New York County Lawyer’s Association (the “NYCLA”) hosted an event entitled “Murder to Museums: Recent Cases and Ethical Considerations in Nazi Looted Art,” with remarks by Raymond Dowd from Dunnington Bartholow & Miller LLP, and introduced by the Honorable Barbara Jaffe, acting justice in the New York State Supreme Court. Dowd is one of the program chairs of the Art Litigation and Dispute Resolution Practice Institute, scheduled to hold its 8th annual conference in November 2015.

La-Bergere

“La Bergere rentrant des moutons/Shepherdess Bringing in Sheep” (1886) Camille Pissarro

Dowd, who has represented numerous claimants with title dispute cases in U.S. courts, introduced the topic for the evening with a few examples of ongoing restitution cases, including the recent effort to return Camille Pissarro’s painting, “La Bergère Rentrent des Moutons,” from the University of Oklahoma. The concept of art restitution, Dowd explained, began with the Lieber Code, also known as Executive Order 100, ordered by President Lincoln in 1863 and later included in the Hague conventions in 1899 and 1907. The code sought to protect classical works of art and libraries and banned the sale or donation of art removed from enemy nations.

Recent movies such as “The Monuments Men” (2014) and “Woman in Gold” (2015) brought Nazi art restitution to the forefront of art and legal discussions, begging the question, how did the Nazis take possession of art collections that belonged to Jews? Dowd explained that the Nazi regime demanded regular declarations of property from Jews and systematically transferred ownership of all Jewish assets by forcing Jews to relinquish power of attorney to an assigned “Aryan trustee.” This Nazi system that funded their war efforts appears to abide by the law. Dowd suggested that the legal appearance of these sham transactions with blocked bank accounts has confused historians and judges alike when trying to decide if a piece of art was sold fairly or forcibly.

With so many stolen works scattered in museums around the world, Dowd questioned whether museums are doing enough to investigate their holdings and return the looted work to their rightful owners. Though the U.S. State Department has regularly shown support for Nazi restitution, the U.S. federal court system has nevertheless rejected many of these claims, and in some circumstances, ruled in favor of museums that have sued the Jewish heirs for extortion.

Dowd introduced some of the hurdles, such as laches (the undue delay in obtaining relief), statute of limitations, and the claim that the sales were voluntary, that he has incurred in his own work representing heirs of Holocaust survivors. In Dowd’s case In re Flamenbaum, the rejection of the laches argument to bar the return of a third century golden tablet belonging to the Temple of Ishtar was instrumental as support for other cases that similarly would need to argue against laches. This subject was particularly timely in light of the recent Cassirer v. Spain appellate decision against Claude Cassirer, heir to Lilly Cassirer who was forced to give up Camille Pissarro’s “Rue Saint-Honoré, Après-midi, Effet de Pluie” while fleeing from Nazi Germany. Recognizing national sovereignty, the court ruled that Spanish law rather than California law applied to  the case because, though the plaintiffs had a significant connection to California, the painting did not. According to Spanish law, if one possesses property in an obvious way for a certain period of time, ownership transfers to that individual.  Therefore, since the doctrine of adverse possession applied in this case, it did not matter that the painting in question was looted by the Nazis.

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“Seated Woman With Bent Left Leg” (1917) Egon Schiele

Dowd warned the audience that it is important to look skeptically at provenance research associated with works of art. As an example, Dowd discussed the case Bakalar v. Vavra, where he established that Franz (Fritz) Grunbaum, who owned a sizable collection of Egon Schiele works, was murdered in Dachau. Sotheby’s claimed in the listed provenance for the drawing by Egon Schiele, “Seated Woman With Bent Left Leg” (1917), that it was passed down to the widow and heirs and then sold voluntarily, when in reality no such transactions took place.

Dowd concluded that museums are not doing enough to research their collections and return stolen works, noting that if there is a theft in a transaction, the transactions that follow are irrelevant. Museums such as the Museum of Modern Art, the Toledo Museum of Art, the Detroit Museum of Art, the Museum of Fine Arts in Boston, and the Guggenheim Museum, are still fighting and rejecting charges of looted Nazi art, refusing to return the works.

The CLE lecture, which drew an audience of approximately thirty people, ended with questions on what museums should do in response to claims of looted art and suggestions for what advocates can do to rectify the suppression of Nazi looted art claims.

Select Cases:

  • Bakalar v. Vavra, 619 F.3d 136, 2010 WL 3435375 (2d Cir. Sept 2, 2010)
  • Cassirer v. Kingdom of Spain, 616 F.3d 1019 (9th Cir. August 12, 2010)
  • De Csepel v. Republic of Hungary, 714 F.3d 591 (D.C. Cir. 2013)
  • Grosz v. Museum of Modern Art, 2010 WL 88003 (Jan. 6, 2010), aff’d (2d Cir. Dec. 16, 2010.)
  • Guggenheim v. Lubell, 153 A.D.2d 143, 153, 550 N.Y.S.2d 618, 624 (1st Dep’t 1990), aff’d 77 N.Y.2d 311, 321
  • Schoeps v. State of Bavaria, 2014 WL 2915894 (S.D.N.Y. June 27, 2014)
  • Menzel v. List, 267 N.Y.2d 804, 819 (Sup. Ct. N.Y. Co. 1966), modified 279 N.Y.S.2d 608 (1st Dep’t. 1967), modified and aff’d 24 N.Y.2d 91 (1969)
  • Museum of Fine Arts Boston v. Seger-Thomschitz, 623 F.3d 1 (1st Cir. Oct. 14, 2010)
  • Republic of Austria v. Altmann, 541 U.S. 677 (2004)
  • Toledo Museum of Art v. Ullin, 477 F. Supp.2d 802 (N.D. OH 2006)
  • Vineberg v. Bissonnette, 548 F.3d 50 (1st Cir. 2008)
  • Von Saher v. Norton Simon Museum of Art at Pasadena, 131 S.Ct. 379 (Oct. 4, 2010)

Additional Sources:

  • Dowd, Raymond J., Nazi Looted Art and Cocaine: When Museum Directors Take It, Call The Cops, 14 Rutgers Journal of Law and Religion 529 (2013)
  • Dean, Martin, Robbing The Jews: The Confiscation of Jewish Property in the Holocaust, 1933-1945 (Cambridge U. Press 2008)
  • Petropoulos, Jonathan, Art As Politics in The Third Reich (U. North Carolina Press 1999)
  • Petropoulos, Jonathan, The Faustian Bargain: The Art World In Nazi Germany (Oxford U. Press 2000)

*About the Author: Debra Friedmann is a rising second-year law student at the Georgetown University Law Center. She received a B.A. in History and Studio Art from Brandeis University. She may be reached at dsfriedmann@gmail.com.

Disclaimer:  This article is for educational purposes only and is not meant to provide legal advice. Readers are not meant to act or rely on the information in this article without attorney consultation.

The Eaton Collection: Off the Block at Rago

By Rebecca Krishnan-Ayer*Screen Shot 2015-06-10 at 12.26.01 AM

The Contested Sale

The New Jersey-based auction house Rago Arts and Auction Center (est. 1988) stirred controversy with the April 2015 projected sale of 450 works of art and artifacts from the Japanese-American internment camps established during World War II. In the wake of the New York Times article announcing the auction, activists and community leaders alike banded together to ignite a social media campaign against the auction house, whose annual sales total approximately $30 million. Rago initially stood behind their decision to proceed with the sale, citing a lack of alternate options available to the client for relinquishing the items. As the New York Times reported, “A spokeswoman for Rago wrote in an email that the unnamed auction consignor, who knew the Eaton family, is ‘not in a financial position’ to donate the material to institutions and ‘did not feel qualified to choose one institution over another.’ The consignor has described the protests as a ‘social media attack’ meant to ‘bully us into compliance with their demands.’”

Meanwhile, protest groups established a Facebook page, “Japanese American History: NOT for Sale,” assembling over 6,700 followers. Critics also launched a Change.org petition, lambasting “the betrayal of those imprisoned people who thought their gifts would be used to educate, not to be sold to the highest bidder in a national auction, pitting families against museums against private collectors.” Among those issuing a rallying call for action was Japanese American actor George Takei, who helped catapult the controversy to the forefront of Japanese American cultural groups’ and foundations’ agendas–he himself was interned in one of these camps at the age of five. Eric L. Muller, Dan K. Moore Distinguished Professor in Jurisprudence and Ethics at University of North Carolina School of Law, assisted with preparing the sale catalog for Rago, and declined to proceed with a lecture planned at the auction house after learning that the consignor had refused to transfer or donate the property to Japanese-American cultural institutions. “I did not feel that I could deliver a public lecture connected to the sale in good conscience,” Muller told the ArtsBeat blog of the New York Times of the ethical quandary he faced. As the social media campaign opposing the sale gained traction and an injunction was issued from one former internment camp site, the Heart Mountain Wyoming Foundation, Rago announced their agreement to cancel the auction on April 15, 2015. The auction house’s decision and underlying motivations still draw criticism from activists such as Shirley Higuchi, chairwoman of the Heart Mountain Wyoming Foundation, who stresses that only after the immediate threat of legal action did Rago agree to withdraw the items from the auction block.

The Objects

The ownership of the collection, comprising 23 lots, can be traced back to the 1950s. Following World War II, a number of former internees and Japanese American families donated works of art and furniture to Allen Hendershott Eaton, a historian conducting research for his 1952 book, Beauty Behind Barbed Wire: The Arts of the Japanese in Our War Relocation Camps. The objects were then handed down to an unnamed family friend of Eaton’s heirs based in Connecticut. Among the items bestowed to Eaton were unique “handmade cigarette boxes, delicate bird brooches carved of wood, intricate family nameplates, a cat figurine shaped from tree roots, and watercolors of life inside the camps, including children playing in dirt lanes and outdoor assemblies,” the LA Times reports. In an interview with NPR, Delphine Hirasuna, a scholar specializing in art created in the internment camps observes: “Here is something that gives them pride about what the[ir] grandparents created under really bad circumstances.” The emotional value of the collection far exceeds its monetary value (Rago appraised the lots for a collective estimate of around $26,000) and includes oil paintings and rare black and white photographs depicting families, internees creating works of art, and the rarely seen environs of camps in the West. Individuals born in internment camps or whose relatives experienced the tragic imprisonment of 120,000 Japanese Americans following the U.S. bombing of Pearl Harbor stand by the injustice in selling and monetizing such seminal memories and facets of history.

The Outcome

Screen Shot 2015-06-10 at 12.23.26 AMOn May 2, 2015, the Japanese American National Museum in Los Angeles announced plans to acquire the hotly contested collection as a result of Takei’s efforts to halt the public sale and with the cooperation of the would-be consignor. The museum recently honored Takei, a board trustee, for his contributions with the Japanese American National Museum’s Medal of Honor for Lifetime Achievement. According to Takei, “To put [the Eaton collection] up on the auction block to the highest bidder, where it would just disappear into someone’s collection, was insensitive. The most appropriate and obvious place for the collection was the Japanese American National Museum.” Rago Arts and Auction Center presumably played a role in the amicable settlement and urged the arts community to engage in a broader discussion on related legal and ethical dilemmas facing other institutions. Its managing partner, Miriam Tucker, affirms, “The issue extends beyond what is legal. It is something auction houses, galleries and dealers are faced with regularly.”

The Rago case recalls the efforts and ethics involved in recovering other culturally significant property such as Nazi-era looted works or Native American artifacts. Marc Masurovsky, co-founder of the Holocaust Art Restitution Project, describes a certain “sensibility and sensitivity” that must be acknowledged when dealing with such works. The attempted sale of the Eaton collection also raises interesting issues regarding precedent and discretion when it comes to auction houses accepting consignments, institutions acquiring objects, or galleries purchasing works. Legality aside, ethics and public good seem to challenge the notion of a “pure transaction” involving works of art and objects of cultural heritage.

Note from the editors: On the footsteps of the positive outcome for the Eaton collection, Center for Art Law is acutely interested in the auctions of Hopi artifacts that have taken place and continue to occur in France despite the communal and legal efforts to halt those contested sales. While Rago decided, with some backing from the court, to withdraw the Eaton items from auction, Hôtel Drouot, the largest auction house in Paris, has been proceeding with the sales of Hopi relics despite public outcry.

Select Sources:

About the Author: Rebecca Krishnan-Ayer received a B.A. in Art History and French Literature from Johns Hopkins University.

 

Case Review: Foster v. Svenson (2015)

arne-svenson-neighbors-3

Arne Svenson, “The Neighbors, # 3″ (2012)

By Christopher Visentin*

Following up on a remarkable decision from 2013, this April 9th the New York Appellate Division of the Supreme Court affirmed the Supreme Court’s dismissal of a family’s right of privacy claim in favor of an artist’s freedom of expression.

Two years ago Matthew and Martha Foster filed a complaint alleging breach of privacy against photographer Arne Svenson after learning that they, as well as their two young children, were subjects of Svenson’s series of photographs entitled “The Neighbors”.  For the series, Svenson used a camera with a telephoto lens to capture images of inhabitants of a glass apartment building across the street from his own apartment. Svenson took the photographs without knowledge or permission of his subjects. The Fosters learned of the images through a local publication promoting the exhibition of the photographer’s most recent works.

In 2013, the Supreme Court of New York granted Svenson’s motion to dismiss Fosters’ claims for injunctive relief and damages for emotional distress. Justice Rakower found that the First Amendment protects Svenson’s photography and artistic expression. Therefore, defendant’s conduct was deemed not actionable under the current New York privacy laws. (See Center for Art Law reporting from July 21, 2013 and August 11, 2013.) Fosters appealed.

Last month, on April 9th, the Appellate Division agreed with the lower Court’s decision. Justice Renwick, in her opinion for the Court, noted that under the New York law newsworthy events and matters of public concern have long been exempted under the privacy statute. Justice Renwick also noted that courts have extended this exemption to literature, films, and theater. It follows, she wrote, that the exemption should likewise extend to other forms of artistic expression, here, photography.

But the exemption for newsworthy events and artistic expression is not absolute; Justice Renwick noted that images used for “advertising or trade purpose” do not deserve exemption from the privacy statute. She made clear, however, that even though the Fosters saw the images in a notice promoting the exhibition, and even though Svenson might profit from the images he created, the promotion of the exhibition and any financial benefits relate to the art itself, and therefore the images are not used for “advertising or trade purpose” under the meaning of the privacy statute.

The decision places much importance on protecting freedom of expression, even when the expression constitutes what many people would feel is a clear invasion of privacy. Justice Renwick recognized this tension in her opinion, but she found that the invasion of privacy has to be much more outrageous to weigh against the court’s tendency to protect the public’s interest in the free flow of ideas. Barring such outrageous conduct, it seems that arts and artists enjoy a significant amount of liberty to create and display their art, even when such expression might violate other’s perceived rights, whether they live in glass houses or not.

Justice Renwick acknowledged that some may find the outcome troubling, however, when she stated, “Many people would be rightfully offended by the intrusive manner in which the photographs were taken in this case. However, such complaints are best addressed to the Legislature.” Foster v. Svenson, No. 03068, slip op. at 7 (N.Y. App. Div. Apr. 9, 2015). It may not be surprising, then, when this issue receives more attention in the future.

Note from the editors:

IMG_20150528_184951

Center for Art Law Mixer at Sundaram Tagore Gallery (May 28, 2015).

On May 28th, Center for Art Law hosted its latest Art/Law Mixer dedicated to photography and the law at Sundaram Tagore Gallery in New York City. In light of the gallery’s exhibition of large-scale silver gelatin prints by Brazilian photographer Sebastio Salgado, the discussion for the evening centered around recent photography case law and its affect on the art and legal worlds. Special guests for the evening included Paul Cossu (Cahill Partners) and Nancy Wolff (Cowan, Debaets, Abraham, and Sheppard LLC). Paul discussed the case his firm handled, Sobel v. Eggleston (2013), where a collector claimed that his limited editions of Eggleston photographs were harmed by the photographer’s later production of prints of the same images in different size and medium. Nancy, attorney for Arne Svenson, the photographer featured in the case review above, discussed her experiences advising and representing Svenson in court. She indicated that case law has evolved and new photography law textbooks may be in order.

Sources:

About the Author: Christopher Visentin is a rising third-year law student at Boston University, where he concentrates his studies on intellectual property law, art law, and law and literature. He is also pursuing a master’s degree in English literature at Boston University.

Disclaimer: This article is for educational purposes only and is not meant to provide legal advice. Readers are not meant to act or rely on the information in this article without attorney consultation.

Art Dealer Professionals Beware of Purchasing Stolen Goods

By Sekou Campbell, Esq.*

Judges in the District Court for the Central District of California, the Ninth Circuit Court of Appeals (twice, here and here) and Justices in the U.S. Supreme Court have heard the story of Norton Simon, a case initiated on May 1, 2007 by a family member of a victim of Nazi art looting. Indeed, legislators have even weighed in on the case by amending California Code of Civil Procedure § 338 (Assembly Bill 2765, introduced on February 25, 2010). The latest Court (from the C.D. Cal.) pronouncement states that, at least when it comes to museums, galleries, auctioneers or dealers, the ancient maxim caveat emptor (buyer beware) strictly applies to bona fide purchasers of stolen artwork. Therefore, art theft victims, or their heirs, like Marei von Saher can bring claims against art dealer professionals like the Norton Simon Museum of Art in Pasadena even after the statute of limitations has run, if the subject artwork was “subsequently purchased” and “actually discovered” within the limitations period.

Facts

Von Saher alleges that she is heir to the diptych entitled “Adam and Eve,” a pair of sixteenth century oil paintings on wood panels by Lucas Cranach taken in a forced sale by the Nazis during World War II. Von Saher’s Dutch father-in-law, Jacques Goudstikker, purchased “Adam and Eve” in 1931. After Nazi invasion of the Netherlands in May 1940, Jacques Goudstikker fled Jewish persecution to South America by ship, but died in an accident en route. He left behind a “Blackbook” containing a log of much of his art collection, which included an entry for “Adam and Eve.” In May 1945, the Allied Forces recovered, among other artwork, the looted “Adam and Eve” and returned it to the Netherlands. There, Dutch restitution law required claimants to return money (from a “forced sale,” a sale of assets far below market value) as a condition for recovery of looted artwork. Therefore, Desi Goudstikker, Jacques’ widow, did not file a restitution claim for “Adam and Eve;” she also explicitly declined to waive any claim to the subject artwork. The Dutch government retained possession of the piece until 1961, when it transferred the work to George Stroganoff-Scherbatoff without notifying the Goudstikker family. Norton Simon then purchased “Adam and Eve” from Stroganoff-Scherbatoff in 1971 and has “possessed” them ever since. Desi Goudstikker died in 1996 leaving Von Saher as the sole Goudstikker heir. “Adam and Eve” went on display for the first time on October 25, 2000 at Norton Simon. Sometime thereafter, Norton Simon and Von Saher entered an agreement to toll the statute of limitations (essentially calling timeout on the statute that limits the time when a party can bring certain claims).

Procedural History

On May 1, 2007 Von Saher filed her initial complaint (began the lawsuit). In 2010, the Ninth Circuit appellate court affirmed a district court decision that California Code of Civil Procedure § 354.3 was “facially unconstitutional” under the foreign affairs doctrine and that Von Saher’s claim was “time-barred” (filed after the statute of limitations, even considering the tolling agreement). However, Von Saher was allowed to and did amend her complaint to “allege the lack of reasonable notice to establish diligence” under California Code of Civil Procedure § 338. That statute was then amended to allow recovery of a work of fine art six years after a plaintiff “actually” rather than “constructively” discovers (meaning when a plaintiff did discover not when she should have discovered) that a “museum, gallery, auctioneer or dealer” improperly owns looted artwork. In 2014, the Ninth Circuit, reversing the Central District of California’s decision, held that such an action did not conflict with express U.S. policy on Nazi-looted art and remanded the case back to the district court to rule on the remaining arguments on Defendants’ Motion to Dismiss. The Court declined to decide on those issues but rather invited Norton Simon to provide any other reason for dismissing the claims. Norton Simon complied and that Motion was briefed throughout March of 2015. On April 2, 2015, the district court denied Norton Simon’s motion and allowed the case to move forward on the grounds discussed below.

Analysis

Under the ancient maxim caveat emptor (buyer beware), the Court held that Norton Simon was exposed to liability for “Adam and Eve” even if Stroganoff-Scherbatoff, the party Norton Simon bought the piece from, was not so exposed. The Court determined that Desi Goudstikker, Von Saher’s predecessor-in-interest, would have been barred from bringing a claim against Stroganoff-Scherbatoff had he retained possession of “Adam and Eve.” “However, it is an open question in California whether a subsequent possessor who acquires stolen property after the statute of limitations has already expired is subject to a renewed limitations period” (Von Saher, at p. 9, citing Soc’y of California Pioneers v. Baker, 43 Cal. App. 4th 774, 783 n.4 (1996) (“we need not decide whether a purchaser who acquired the item after the statute expired would be subject to a renewal of the limitations period.”); also see Naftzger v. American Numismatic Soc’y, 42 Cal. App. 4th 421, 423 (1996) (“[w]e do not decide, for example, if an owner who fails to file a lawsuit under the prior version of section 338, subdivision (c) within three years of discovering the property’s whereabouts will be time barred if the thief or subsequent possessor later moves the stolen property to an unknown location, sells, or continues to withhold the stolen property.”)). Relying on an explanation of caveat emptor from the Oregon Supreme Court in 1888, the Court reasoned that “[e]very person is bound at his peril to ascertain in whom the real title to property is vested, and, however much diligence he may exert to that end, he must abide by the consequences of any mistake.” Velzian v Lewis, 15 Or. 539, 542 (1888). In other words, as between a “sophisticated” art dealer (museum, gallery or auctioneer) and an heir, the art dealer should bear the risk of mistakenly purchasing looted Nazi artwork.

The Court further explained the fairness of its decision by distinguishing between a “remedy,” a court-imposed resolution favoring the plaintiff, and a “cause of action,” a right for a plaintiff to sue in the first instance. A statute of limitations extinguishes a “remedy.” Meaning, for example, if a defendant merely forgets to assert a statute of limitations defense, the Court can provide an award for plaintiff. If the statute of limitations period is tolled by agreement, the Court can provide an award for plaintiff. If a defendant fraudulently hides the wrongdoing during the limitations period, the Court can provide an award for plaintiff. In other words, the passage of time alone does not eliminate the right to sue, it merely may extinguish the right to recover the stolen property. On the other hand, every transfer of stolen property is a new unlawful act, governed by civil tort law. So, according to the Court’s recent decision, when Norton Simon purchased “Adam and Eve,” even if it did not know such a purchase was unlawful, it committed a new tort, and thus was subject to a new statute of limitations period. Therefore, the Court held that Von Saher could proceed on her new “cause of action” against Norton Simon, which accrued on October 25, 2000, and was tolled within the new six-year limitations period under California Code of Civil Procedure § 338.

Implications

Of course, purchasers, particularly art buyers, should be wary when entering transactions. But, this case leaves open what type of investigation suffices. Specifically, the Court briefly addressed whether “adverse possession” could or should apply in this case. “Adverse possession” is a doctrine that states, after certain requirements are met, an unlawful possessor of even stolen property obtains superior title to the relevant property as against the whole world, including the rightful owner. The rationale behind “adverse possession” is to encourage property owners to make productive use of their property and therefore defend against unlawful users or possessors. The existential threat that enabled Nazi looting suggests that, at least, in cases like Norton Simon, a very careful analysis is required before finding that a party could adversely possess Nazi-looted artwork. Therefore, the Court deferred judgment on any claims to title of “Adam and Eve,” through adverse possession or otherwise, by Norton Simon for another episode in this ongoing saga.

*About the Author: Sekou Campbell is an attorney in private practice in Philadelphia, PA.

Sources:

  • Marei von Saher v. Norton Simon Museum of Art at Pasadena, et al., CV 07-2866-JFW (JTLx) (Mar. 22, 2015).
  • California Code of Civil Procedure § 338.

More than Just “Street Cred”: Why Intellectual Property Rights Matter to Street Artists

By Christine E. Weller*

Perhaps to the dismay of artists executing works in public spaces or on private property, street art and graffiti art has financial value and can be sold at auction without the artist’s consent. This commercialization does not sit well with some artists who engage in street art (illegally at times) as part of a political act, social commentary, or even just  for exposure.  Increasingly, graffiti and street artists who fight the involuntary commercialization of their work are achieving some success.

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Street art near Center for Art Law’s Headquarters in DUMBO. The DUMBO Improvement District commissioned this work with studio Sagmeister & Walsh, in partnership with Two Trees Management Co and the NYCDOT Urban Art Program, who collaborated with renowned Japanese illustrator Yuko Shimizu, and hand painted by Coby Kennedy.

While the terminology is unclear and used interchangeably, graffiti and street art are distinct.  The two disciplines can inform each other and are interrelated, but they differ in terms of style, method, and theme. Graffiti generally refers to stylized writing such as graffiti tags and visual work placed on buildings without permission.  Street art can take the form of murals or installations incorporated into property, more often with permission (tacit or explicit) of the property owner. Labels aside, street art lawsuits are garnering attention, and have enough merit to have caused several major commercial brands, including American Eagle Outfitters and Sony Music to settle infringement claims.

Since July 2014, there has been a rise in intellectual property (IP) lawsuits filed by street artists. However, a tension in the legal framework exists.  Many still view street art as an illegal act without artistic merit, to which no rights should attach. Notwithstanding the Visual Artists Rights Act (VARA), U.S. Copyright legislation that protects “moral” rights of artists in their work, there is legal precedent that street art may be destroyed by the property owner or painted over. Cohen v. G&M Realty LP, 988 F. Supp. 2d 212, 214, 109 U.S.P.Q.2d 1869 (E.D.N.Y. 2013)(Five Pointz). Nevertheless, the right to reproduce the street art may be protected by copyright or trademark law as evidenced by the successes in recent copyright cases brought by street artists.  The tension between the street artists’ intellectual property rights and the arrests and vandalism charges they may face is illustrated by the arrest of graffiti artist Cost (Adam Cole) and the recent false arrest lawsuit filed by Richard Pfeiffer, who police allegedly thought was Banksy. Richard Pfeiffer vs. The City of New York et al, No. 152797/2015 (N.Y. Sup Ct. Mar. 21, 2015).

However, with this new wave of successful suits and several forthcoming street art exhibitions, such as Coney Art Walls presented by Jeffrey Deitch in New York and Open Source: Engaging Audiences in Public Spaces presented by the Philadelphia Mural Arts Program, there is an increased need for both artists and brand owners to appreciate that intellectual property rights can attach to artworks installed or executed in public spaces.

A Legal Primer

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“Trust Your Vision” By gilf! Street art near our headquarters in DUMBO. Plaque next to art states: “As the world becomes more and more competitive it’s easy to lose sight of one’s goals and aspirations. This maze-inspired piece references the difficulty of navigating life, especially in a city like New York.”

Under U.S. Copyright law, legal protection attaches when an original work is “fixed in a tangible medium of expression.” 17 U.S. Code § 102. Originality is a fairly low bar. The holder of the copyright has several exclusive rights in the work for the duration of the copyright (the general rule today is the life of the author plus 70 years for most works), including: reproducing the work, preparing derivative works, distributing copies of the work and displaying the work publicly. Id. § 106.  Authors need not own the physical copy of the original, nor register their works in order for rights to attach.  However, registering the works with the U.S. Copyright Office is a prerequisite to bringing a lawsuit and allows for statutory damages. Id. § 411. In cases where actual damages are hard to prove, registration is a cheap and added benefit to the copyright owner.

Under U.S. Trademark law, protection attaches to words or symbols used to distinguish a good or service in commerce. 15 U.S. Code § 1051 et. seq. Trademark law is used to protect consumers against confusion. A trademark has the potential to last indefinitely provided that it is being used in commerce.  While the use in commerce requirement for trademarks may make it more challenging for an artist to obtain a trademark registration than a copyright registration, a trademark registration with the Patent and Trademark Office may be another source of artists’ rights in their work. Trademark protection may be especially relevant where an artist uses a graffiti or street art tag in commerce.

The Cases

Anasagasti v. American Eagle Outfitters, Inc., No. 1:14-cv-05618 (S.D.N.Y. Jul 23, 2014)

The recent wave of street art infringement cases began in 2014 with the copyright case filed by Cuban-American street artist Ahol Sniffs Glue (David Anasagasti).  In July, Anasagasti filed a copyright infringement action against American Eagle Outfitters for their use of his mural Ocean Grown (Fl) in an advertising campaign. The original mural, located in Miami’s Wynwood neighborhood, known for its abundance of street art, was commissioned by Ocean Grown Glass Gallery. Wynwood has a vibrant collection of murals, and according to the Miami Times, photographers often seek licenses from the artists before shooting the work. In his complaint, the artist alleges that no permission was sought, and the photography included models posing as if they were painting the murals. American Eagle and Anasagasti privately settled in December.

Hayuk v. Sony Music Entertainment et al, No. 1:14-cv-06659 (S.D.N.Y. Aug 19, 2014)

Well known and successful artist Maya Hayuk also brought and settled a copyright infringement case against musician Sara Bareilles and Sony Music for the unauthorized use of her mural, Chem Trails NYC, in promotional materials for Bareilles’ new album and tour. Previously, Hayuk has sued Urban Outfitters, Target, Coach, and Elle Warner, for the unauthorized use of her artwork.

Miller v. Toll Brothers, Inc., No. 1:15-cv-00322 (E.D.N.Y. Jan 21, 2015)

Luxury  real estate developers Toll Brothers settled with CAM (Craig Anthony Miller) for copyright infringement of his famous Elephant Mural (NYC). The mural was featured prominently in advertisements for luxury condos in Brooklyn that Toll Brothers were developing in the neighborhood where the artwork was originally located. CAM had painted the mural with permission of the property owner in 2009, but it was later painted over in 2013.

Franco Fasoli et al v. Voltage Pictures LLC et al., No. 2:15-cv-00889 (C.D. Cal. Feb 06, 2015)

In February, director Terry Gilliam also found himself at the center of a lawsuit over his film, The Zero Theorem (2013), when he  allegedly infringed a mural by Argentinian street artists Jaz (Franco Fasoli) and Ever (Nicolas Santiago Romero Escalada), along with Canadian artist, Other (Derek Shamus Mehaffey).  In Fasoli, the defendant filed a motion to dismiss.  The Court vacated the hearing date of May 4, 2015 and the parties await a finding on the papers.

Jason Williams et al v. Roberto Cavalli, S.p.A. et al, No. 2:14-cv-06659 (C.D. Cal. Aug 25, 2014)

Finally, in a case involving both copyright and trademark infringement claims, Revok, Reyes, and Steel (Jason Williams, Victor Chapa, and Jeffrey Rubin respectively) filed suit against fashion designer Cavalli for the use of the Plaintiffs’ mural in Cavalli clothing designs. In Williams, the Plaintiffs alleged that pieces of their work were reproduced on Cavalli clothing with their signatures obliterated, and the Cavalli trademark superimposed instead. Plaintiffs argued that this creates a false impression to the consumer as to the origin of the product. In February the court denied a motion to dismiss filed by another named defendant in the suit, Staff USA. Williams v. Cavalli, 113 U.S.P.Q.2d 1944 (C.D. Cal. 2015). This suit is currently pending in the District Court of the Central District of California (Western Division).  It will be interesting to see how the court will treat the trademark argument if the case does not settle.  Many of the artists that have brought suit engage in their own commercial transactions and have carefully policed their brands to control how their work is used and sold to ensure that they are being compensated. The disposition of Williams could establish a new legal tool for street artists.

Going Forward

Defendants in many of these cases, recognized brand owners such as Sony, Cavalli and American Eagle usually find themselves on the other side of IP infringement lawsuits. However, these graffiti and street art cases illustrate that savvy business people and corporations exploring new marketing strategies do not always appreciate that art appearing in “public” spaces is not necessarily in the “public domain.” Copying and distributing street art without permission may constitute infringement and may expose the copier or distributor to significant legal risks.

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“The Owls, Revealing Flight” by Craig Anthony Miller (CAM). Street art near our headquarters in DUMBO.

With the preceding examples in mind, street artists should consider their IP rights when installing work in public spaces, and the public and brand owners should be aware that artwork appearing in public spaces may be protected. Before using street art or graffiti art in marketing or product campaigns, brand owners should consider investigating who holds the rights to those works and seek appropriate permissions.  Going forward, street artists who install work in a public space may consider registering that work with the Copyright Office.  Where an artist uses a specific tag or name for commercial purposes, the artist could consider filing for a trademark.  While the notion of “use in commerce” in the context of street art is still untested, bringing a trademark claim in addition to a copyright infringement claim as in Williams might be an additional remedy for a recognized artist.

Select Sources:

*About the Author: Christine E. Weller is an Associate at Griesing Law, LLC where she focuses her practice on new media, intellectual property, nonprofit, and employment law  matters. She can be reached at (215) 732-3923 or cweller@griesinglaw.com.

Disclaimer: This article is for educational purposes only and is not meant to provide legal advice. Readers are not meant to act or rely on the information in this article without attorney consultation.

Art Investment Funds: The Basics

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“It was well-choreographed, a beautiful show, but what was the financial truth?” Christian Ogier, Paris dealer commenting on one of the Christie’s auctions, May 2015.

By Jessica M. Curley*

Fine art is known to have little intrinsic value beyond its cultural significance and aesthetically pleasing nature, yet it seems to be an increasingly attractive alternative to traditional investment assets. The CEO of Blackrock, Larry Fink, recently remarked that one of the “two greatest stores of wealth internationally today is contemporary art,…” adding that, all jokes aside, it is a “serious asset class.” Although many art world enthusiasts advise that people only purchase art if they truly admire it, recent record high sales and huge upside potential are attracting the attention of those more focused on profit making. One mechanism utilized by some of these profit seekers to gain exposure can be found in fund-structured vehicles sometimes referred to as “passion funds.” These art investment funds, or “passion funds,” provide the opportunity for investors to tap into the potential of art works to diversify portfolios and potentially obtain significant returns. While some money managers have also taken interest in other niche asset classes including fine wine, vintage vehicles, stringed instruments, rare gems, and even comic books, this article focuses primarily on fine art.

Background & Market

Individuals and private clubs have been collecting fine art with varying degrees of investment intent for hundreds of years. However, the first institutional investor to specifically allocate capital for the purpose of investing in art is widely considered to be the British Rail Pension Fund, having acquired about 2,500 objects during the 1970’s for a total cost of about $70 million USD, close to 3% of the total fund. Institutional investing in art works has evolved since the 1970’s, resulting in the emergence of more and more funds exclusively dedicated to the asset class. The collapse of the dot-com bubble in 2001 also fueled the art fund trend as investors looked outside of the market for alternative opportunities. This trend of looking towards alternative assets was seen again following the financial crisis of 2008, as investors increasingly focused on tangible assets and alternative types of investment opportunities. Shortly thereafter, 2010 saw record sales of art works at both Christie’s and Sotheby’s, which further demonstrated the potential offered by fine art. More recently, in 2014 the global art market reached the highest level ever recorded, a total of over €51 billion.

Players

Managers of art funds are typically professionals from the financial industry, who have an interest and/or experience in the art world. They provide a number of crucial services including fundraising, investor relations, strategy development, market monitoring, and management of the disposition of fund assets. One notable example can be seen in Ron Perelman, billionaire businessman and art enthusiast, who established MAFG Art Fund for the purpose of investing in fine art, and who recently made headlines after getting caught up in a series of unfortunate  transactions (read more here).

Art fund investors generally have some kind of prior knowledge of the art market, and are largely looking to this type of asset for diversification and hedging purposes. To qualify to invest, they must be considered “accredited investors” under SEC guidelines, meaning that they are financially sophisticated individuals or institutions that require less protection than their unsophisticated counterparts. Institutional investors commonly include pension funds, trusts, family offices, insurance companies, endowments, and sovereign wealth funds, among others. For an individual to qualify for “accredited investor” status they must meet one of the following three criteria: (1) have a net worth exceeding $1 million, either individually or jointly with a spouse; (2) have an individual income in excess of $200,000 per year; or (3) have a joint income of $300,000 during each of the last two years and reasonably expect the same level of income moving forward.

Structure

Art funds are transactional in nature. They typically generate returns by strategic purchase and sale of artworks. In the US, art funds generally adhere to the traditional hedge fund structure of a limited partnership (typically in the form of a limited liability company (“LLC”)), which consists of a managing general partner(s), and a limited partner(s) who invest in the fund. Offshore funds can take on a number of more complex feeder/master fund formations, which also usually take on the form of a limited partnership, albeit with a wider variety of structuring options depending on source(s) of investment capital, taxation and accounting preferences. An open-ended fund scheme allows for the admittance of new investors and withdrawal of current investors throughout the life of the fund. More commonly used are close-ended funds, which, as the term implies, are closed to new investors once the fixed term to raise capital has ended. A third option consists of a hybrid model, which is more closely related to a close-ended fund, but which allows for some liquidity as investors can redeem shares after providing notice. Despite the likely existence of a withdrawal fee provision, the hybrid model boosts marketability since it provides for a quick exit for investors who do not like their capital locked up.

Once the structure is created and fund raising commences, a private placement memorandum detailing the objectives, risks and terms, including the investment minimum, of the offering is drafted and provided to potential investors. When an investor decides to invest, a subscription agreement detailing number of shares, price, and other terms will be executed resulting in the investor becoming a shareholder in the fund. One prominent art fund, the London-based Fine Art Fund Group, established in 2001, has six separate funds each of which is composed of an investment minimum of between $500,000 and $1,000,000 by 30 to 40 individual or institutional investors. Under some circumstances, investors may redeem shares, or sell to another accredited investor through a private placement, but this is typically limited or prohibited by the agreement terms.

Regulation

It is unknown exactly how many art funds exist today. Recently, Center for Art Law sat down with Enrique Liberman, President of the Art Fund Association, who has advised that there may be around 45 total funds worldwide. Most art funds are private investment vehicles, and as such are not subject to public disclosure and other burdensome regulatory requirements. Those art funds that are private investment vehicles must abide by the Regulation D private placement exemption requirements under the Securities Act of 1933 (the “33 Act”), which include limiting the offer to “accredited investors,” disclosing all material elements of the investment opportunity in a private placement memorandum and subscription agreements, and filing notice with the Securities and Exchange Commission (“SEC”) and with any relevant state regulators. To avoid being defined as an “investment company” under the Investment Advisers Act of 1940 (the “40 Act”), and thus subject to its additional set of regulatory burdens, art funds must qualify for one of two exceptions: having less than 100 investors or having up to 499 investors who meet the definition of “qualified purchasers.” Art funds are also subject to the anti-fraud provisions promulgated in the 33 Act, the Securities Exchange Act of 1934 (the “34 Act”) and the 40 Act, which prohibit fraud in connection with the offer and sale of securities and in connection with advisory services. Art fund managers themselves must register as investment advisors with the SEC, under the 40 Act, if either they engage in significant leveraging and securities trading strategies, or the art fund exceeds the $150,000,000 threshold for “assets under management,” which are rare. Art fund managers may also need to register if required by state laws.

In contrast to the heavy regulation and transparency of the financial markets, the art market is currently burdened by little oversight. Art assets acquired by funds are not subject to the same level of investor protection measures as securities and other financial instruments. Aside from anti-fruad provisions, auction regulations, cultural property laws, and general consumer protection and contract law, not much regulation exists, which is a definite worry for some art market investors. James R. Hedges IV, financier and art collector, was quoted by the New York Times commenting on the state of art market regulation in that “the art world feels like the private equity market of the ’80s and the hedge funds of the ’90s…it’s got practically no oversight or regulation.” In the same vein, Nouriel Roubini, co-founder and chairman of Roubini Global Economics, has advised that the art market is prone to abuse through “routine trading on insider information,” and is used for money laundering and tax avoidance purposes.

Additionally, art funds tend to be discreet in their communications due to solicitation and advertising restrictions under Regulation D. Hence the scarcity of information available about the strategies, operations, and returns of art funds. Generally speaking, art funds may adopt broad investment strategies or alternatively may be more refined, for example, focusing on acquiring art of a specific genre or geographical region. Works from certain genres or regions can be more profitable than others due to a number of factors, including trends, cultural awareness, and economic growth and prosperity. For example, Post-War & Contemporary art has outperformed Impressionist and Old Masters for the last two decades according to the Mei Moses Fine Art Index, and has even outperformed the S&P 500 for the last ten years. Fine Art Fund Group CEO Philip Hoffman has advised that the firm began by investing in Old Masters, Impressionist, Modern and Contemporary Art, and have since expanded into “emerging art” genres. It has also been disclosed that the first two funds produced annual returns of 16 percent for sold pieces, a figure based on the sale of about 100 artworks.

More is known about fee structures than investment strategies. The two most common fees include a management fee of about 1 to 2 percent, and a performance allocation fee of around 20 percent of the net income of the fund per annum. Additional costs associated with art funds include traditional expenses incurred by collectors: commissions, buyer’s premiums, shipping, storage and insurance. That said, art funds generally try to avoid transacting through auction houses so as to avoid hefty sales commissions and buyer’s premium expenses. The Collectors Fund, based in Kansas City and established in 2006, manages between $20 and $30 million raised from around 100 investors each having contributed a minimum of $100,000. Once works are sold, a 20 percent management fee is skimmed from the net profits. From the remainder, 40 percent is distributed to investors, while 60 percent is reinvested and used to purchase additional works.

Pros & Cons

Art funds offer many unique advantages to investors. The value of fine art is generally uncorrelated with traditional financial markets, providing a means of diversifying portfolios, and hedging against market downturn and inflation. Art typically holds its value, especially on the higher end, and has consistent performance returns, which are very attractive characteristics to investors. Although the art market is subject to little oversight, actual art funds are subject to some financial industry regulation and must comply with initial and periodic disclosure requirements, and antifraud provisions, which provide some level of investor protection. Art fund managers also have a fiduciary duty with regard to their investors, which is virtually non-existent in gallery-investor or auction house-investor relationships. Additionally, fine art has an inherent appeal as a luxury good, and depending on the fund, may be loaned out to investors for personal use.

One potential drawback of art fund investing is that traditional financial modeling does not generally work due to the unique nature of art works and trends in the art market. For investors who are accustomed to relying at least partially on traditional models, this may cause some discomfort. Another concern is that art funds require professionals who can strategically advise on the purchase and sale of art works; however, this is a difficult skill to qualify as past performance is often hard to measure. Limited liquidity is a major issue facing art fund managers and investors; art must be sold according to market trends in order to maximize returns, which may not coincide neatly with the close of a fund. Furthermore, as previously mentioned, unlike the financial markets, the art market is highly unregulated leading to less investor confidence in fair dealings, and more potential for price fixing and manipulation. The issue of valuation presents another problem for art funds as the value of acquired works remain that of the purchase price, not accounting for any shifts, until there is a liquidity event, making it hard to value a fund at certain benchmarks. Provenance issues, including forgery, looting events, and misattribution, are also pervasive in the art world and may arise if proper research is not carried out prior to purchase. To this end, title insurance may be purchased to protect a fund against a murky provenance.

Looking to the Future

As the interest in fine art investing continues to increase, new variations of the art fund are popping up, providing new ways for investors to access the art market. One such variation is Arthena, the first equity crowdfunding platform that allows investors to pool their capital in “collections” which are curated by expert art advisors. The minimum investment per collection starts at $10,000 providing access to a much broader group of investors than the typical art fund, with a floor of upwards of $100,000.

The art investment industry has also seen a recent trend of investors moving away from art funds and towards privately managed art investment accounts. This allows investors to avoid co-mingling their capital and provides the opportunity to customize the objectives and strategies of the investment.

In addition to these alternatives, new products are in the pipeline that would provide other methods for investing in the art world. Missouri based Liquid Rarity Exchange plans to bring one such product to market in the next few years, which will consist of publicly traded shares of securitized art and other tangible and intangible alternative assets. Shower Zhang, Director of Strategic Planning, has advised that in one interesting scenario, the owner of an art collection, be it an individual or institution, can essentially bring the collection to market through an IPO process, governed by standard SEC regulations. The shares then being traded on the open market. Another product, this one emerging from the banking world, is a collateralized debt obligation (“CDO”) utilizing art loans as the underlying asset. A traditional CDO is a structured investment product that utilizes cash flow-generating assets, including mortgages, loans, bonds, and credit card debt, and bundles them into tranches that can be sold to investors. An art CDO would theoretically operate the same way, only using loans backed by art works as the underlying assets. The art lending business has grown significantly in past few years as banks, auction houses, and private lenders seek to provide this additional service for high net worth clients, and as such, it makes sense that financial institutions would create sophisticated ways to further monetize these loans. 

In conclusion, the subject of art funds has seen about as much enthusiasm as it has criticism from the financial industry. However, it is worth noting that what most people today consider mainstream alternatives (hedge funds, private equity and real estate) were not always considered to be so. This leaves open the possibility that art investment, and particularly art funds, may follow in their footsteps. In the meantime, those considering investing in an art fund are strongly advised to do their research and seek the advice of experts in the field.

Sources:

About the Author: Jessica M. Curley, Esq. (Cardozo ’14) is pursuing her interest in art law and financial regulation in New York. She served as the Spring 2015 Post Graduate Fellow with Center for Art law, and currently works in fund structuring at a large financial institution. 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.

ISIS Cultural Destruction: In Brief

By Mia Tomijima*

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War and political takeovers define history, but are also often responsible for erasing it. The devastating effects of these feuds result in the destruction of cities, people, and culture. Political leaders often make it a goal of destroying cultural heritage as a way of rewriting history and imparting their political, religious or ideological beliefs upon the civilization they are taking over. As the Nazis did during World War II, ISIS has emerged as the most recent group to destroy cultural heritage to further its ideology.

ISIS (or ISIL), shorthand for the Islamic State of Iraq and Syria, is a group of militants that have taken over parts of Iraq and Greater Syria (Syria, Lebanon, Turkey, and Jordan) and claim to represent Muslims worldwide. ISIS emerged during the summer of 2014, and quickly drew media attention with video recorded beheadings of journalists, and other reported massacres.394410_img650x420_img650x420_crop

Alarming reports from the archaeological community show that ISIS militants are now attempting to impose their ideology by demolishing cultural sites in Northern Iraq, including the Mosul Museum, the ancient city of Hatra, and other Assyrian capitals. The systematic public destruction of cultural property politically motivated to attract media attention is also considered to be a war crime under the 1954 Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict. In addition to the senseless destruction, ISIS is also selling Assyrian antiquities on the black market, using the proceeds to fund their campaign. Center for Art Law recently wrote on one such report of an Assyrian statue head emerging in the U.S., and the U.S. Attorney’s Office’s response to bring civil forfeiture proceedings on behalf of war-torn countries.

ISIS affiliation is even claiming responsibility over a recent attack in Texas, involving a shooting that occurred outside a cartoon contest of Prophet Mohammed in Texas (however no formal proof of affiliation of the shooters has yet to be shown). There has been great discussion in the archaeological, legal, and political communities over the destruction of cultural property in Iraq and Syria, including this Yale News conversation with Assyriology Professor Eckart Frahm, and this Democracy Now interview of Columbia University’s Near Eastern and East Mediterranean art and archaeology Professor Zainab Bahrani, who has consulted UNESCO on such matters.

On February 12, 2015, UN Security Council adopted Resolution 2199 to try to curb traffic in looted Syrian and Iraqi artifacts sold by ISIS members. In response to this call for action, French President François Hollande and members of the United States Congress recently issued statements in support of protecting cultural patrimony from the ISIS occupied territories. On April 26, 2015, the US House Committee on Foreign Affairs proposed a bill, H.R. 1493 Protect and Preserve International Cultural Property Act, which would, among other things, “require the Department of State to designate a department official to coordinate the efforts of the federal government to protect international cultural property… and develop strategies to reduce the illegal trade in such property and to assist countries in protecting their heritage sites and preventing looting and theft of cultural property.”

At an emergency meeting in July 2014, UNESCO’s Director General Irina Bokova stated “humanitarian and security concerns are inseparable from culture. Protecting the lives of people, their cultural heritage and identity go hand in hand,” and pledged that “UNESCO will continue mobilizing the United Nations Organization and the whole international community to safeguard Iraq’s cultural heritage with particular emphasis on the fight against illicit trafficking in cultural property.”

Sources:

*About the Author: Mia Tomijima is a recent graduate of Brooklyn Law School, where she received a certificate in intellectual property and served as Chair of the Art Law Association. She received a bachelor’s degree in art history from UCLA, and has worked with museums, auction houses, and law firms on both coasts. Mia is a post-graduate fellow with Center for Art Law. 

Oy May! Artless Boycotts Blossom

Chris Ofili, The Holy Virgin Mary, 1996.  Mixed media, elephant dung.

Chris Ofili, The Holy Virgin Mary, 1996. Mixed media, elephant dung.

By Irina Tarsis, Esq.*

The front page of the New York Times The Arts Section today, May 5, 2015, features indigenous actors and prominent writers staging walk outs. The story of American writers withdrawing from a literary gala that plans to honor the French satirical magazine Charlie Hebdo for “freedom of expression courage” is particularly surprising, as it rings counter to one of the basic principles of this nation’s freedom of speech and the press. While from the standpoint of free speech, “the state has no legitimate interest in protecting any or all religions from views distasteful to them which is sufficient to justify prior restraints upon the expression of those views,” reportedly 200 of 4,000 members of the PEN American Center signed a letter against awarding Charlie Hebdo’s “unacceptable” expressions.

This NY Times story appears just a few pages back from the front page photograph of “a crew … removing the bodies of two gunman who made an assault on a gathering [of controversial cartoonists] in Garland, Tex.,…” The foiled assault on the Mohammad cartoon contest in the United States, carried out by the self-declared ISIS supporters, instantly recalled the attack on the Charlie Hebdo headquarters in Paris earlier this year and the attacks on cultural sites and artifacts carried out by the bonafide ISIS militants.

The New York Times/The Arts (May 5, 2015).

The New York Times/The Arts (May 5, 2015).

Be it a boycott, an assault or a parade, these public spectacles are powerful tools for capturing attention and galvanizing support for a cause. When we talk about boycotts and cultural divides, we must not forget that this week marks the the 70th anniversary of the end of World War II, where millions of people, including talented writers and cartoonists, followers of all religions, died due to intolerance, racism, economic disparity and grand military aspirations. In commemoration of this date, nations and national leaders, veterans and survivors are conducting memorial services worldwide. One nation that arguably suffered the most from the so-called Great Patriotic War, the Russian Federation is poised to conduct one of the biggest parades on the Red Square both to celebrate the triumph over the Nazism but also to illustrate its current military might. Auspiciously, the nations that played as important a role in ending World War II, the Russian allies and former sister nations are not sending their representatives to Moscow this week. The list of absentees includes: the United States, the United Kingdom, France, Poland, Ukraine, Belarus, and Latvia.

The righteousness felt by those engaged in boycotts may be just as harmful as the debase and radical thinking that propels people to engage in unfair labor practices, take property from others without compensation, destroy artifacts and commit murder.

Michelangelo

Michelangelo Buonarroti, Male Nude Seen From the Back With a Flag Staff, ca. 1504. Black and white chalk

What does this editorial have to do with art law? In 1999, Brooklyn Museum organized a show “Sensation: Young British Artists from the Saatchi Collection,” which included works by Chris Ofili made with mixed media including elephant dung. The Mayor of the City of New York, Rudolph Giuliani decided that a number of the works were “sick” and “disgusting.” He decided that one work in particular, “The Holy Virgin Mary” was an attack on religion as it was offensive to Catholics. The Mayor tried to withhold funding from the Brooklyn Museum and threatened eviction. The Court held that the City and the Mayor were prohibited from taking any steps to inflict any punishment, retaliation, discrimination, or sanction against the museum because the freedom of speech trumped in this instance and that no “objective observer could conclude that the Museum’s showing of the work of an individual artist which is viewed by some as sacrilegious constitutes endorsement of anti-religious views.” Art and anti-religious sentiment may be subjective. The line between art and dung is sometimes indistinguishable. Legal minds thrive in the gray zone. Nevertheless, somethings remain black and white. Muscles flexing looks wonderful when it is rendered by Michelangelo or Baryshnikov, but it is much less palatable when done by means of weapons and at the cost of human lives. Certainly, there are fascinating art law debates and cases that stem from trademarking “Je suis Charlie,” looting that occurred during World War II, terrorist attacks and the recent annexation of Crimea, and even using elephant dung to create artworks. This week in May, however, there are few matters more important than cultural tolerance.

Suggested Readings:

About the Author: This editorial is by Irina Tarsis, art lawyer and Founder and Director of Center for Art Law.