Author: Irina Tarsis, Esq.

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

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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.

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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.

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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.

Sources:

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

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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.

Intervivos 

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.

Posthumously

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.

Postscript

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.

Sources:

  • 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.)

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By Angelea Selleck
Screen Shot 2014-08-10 at 9.50.38 PM

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.

Sources:

 

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.

Infamous Piracy: How the Lucrative Market for Forgeries is Transforming the World of Fine Art

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2014-07-30

By Emma Kleiner

Stories of art forgeries capture the public’s imagination in a singular way: fascination centers upon the art itself and the disbelief that collectors, galleries, and professionals could have been misled by a fraud. Today, the expanding and profitable international art market has a correspondingly lucrative market in art forgery. While there have always been ways for forgeries to enter the art market, today’s forgery market is enlarged by the ease of creating fake masterpieces coupled with the multitude of sites where fakes can be sold—at auction, through galleries, or online. The negative publicity generated by any involvement with fine art forgeries is usually enough to steer away potential buyers or admirers; however, in a small set of cases the hoaxes or forgeries themselves become well-known in their own right and take on an infamy of their own. While no centralized national or international system for analyzing how to best regulate the art market exists, the recent strands of art forgery cases around the globe offer policy considerations to help eliminate the market for forgeries.

The art market has rebounded almost to its 2008 pre-crisis level. In 2013, the international art market registered sales of $64.5 billion, which was “close to its highest ever recorded level.” However, buyers are wary of collecting unfamiliar artists, and art purchases have largely focused on household names such as Francis Bacon, Andy Warhol, and Yves Klein. The lucrative art market creates a market ripe for talented forgers, who view art forgery as a very profitable enterprise. Based on a number of recent incidents, it appears that successful art forgeries are easier than ever to execute, with wealthy collectors eager to believe in, and ready to fuel, the high prices commanded by art masterpieces. Just recall the now defunct Knoedler Gallery, which closed in 2011 following the discovery that the gallery had sold $63 million of fakes. Although Ann Freedman, the gallery’s former president, insisted that she had no knowledge that she was selling forged modern classics, there were basic elements that should have alerted her to that fact. In one painting the signature was visibly spelled incorrectly: the painting was signed “Pollok” instead of the correct spelling of “Pollock.” Even so, the painting, which was purchased by the gallery for $230,000, was eventually sold to a Wall Street executive for $2 million.

With the new era of online art retailers, the art forgery market is becoming even more decentralized and easily profitable. In June 2014, John Re, an East Hampton painter, was arrested after netting $1.9 million selling forged Jackson Pollock paintings to private collectors and online through eBay. This forger used shell bidders to drive up prices of the fakes on eBay while assuring bidders that his paintings were “real.” Similarly, British amateur artist Geoffrey Spilman was arrested last year after selling forged modern masterpieces on eBay. Consequently, Spilman was banned for life from eBay. These events highlight the issue that the art market is quickly moving online. Online buyers may present an easier target for forged artwork due to the lack of pre-auction previews, the absence of quality records, and the awareness that auction experts did not vet the pieces. This new area of selling and buying art necessitates strong guidelines for digital art markets.

The abundance of art forgeries sold at auction, online, through galleries, and by private collectors has created a ripple effect in the art market. The repercussions of buying and selling fakes are beginning to be reflected in the management and practices of artists’ reputations and foundations. A recent trend is the increasing reluctance of artist foundations to recognize any new or uncovered artwork as authentic. Artist foundations do not want to become targets for litigation if an authentication dispute flares up between individuals, and thus many foundations no longer offer authenticating services. The Andy Warhol Art Authentication Board, Inc., created in association with the Andy Warhol Foundation for the Visual Arts, was dissolved in 2012. The authentication boards of the Keith Haring Foundation and the estate of Jean-Michel Basquiat were likewise dissolved in 2012. Such disassociation largely shields artist foundations from litigation alleging the foundation authenticated a forgery. However, this insulation not only affects buyers and sellers wishing to determine the authenticity of artwork, it also negatively affects art historical knowledge of these artists. Unauthenticated works cannot be included in official catalogues raisonnés and will remain unknown to future scholars and collectors. Therefore, if artist foundations refuse to analyze problematic artwork, then future scholarship will suffer. This larger impact of the forgery market is critical to appreciating the urgency with which the proliferation of fakes must be curbed. The forged art market affects not only buyers and sellers; it also affects the collective knowledge of future generations.

Usually, the public relations nightmare of being caught in an art forgery scandal is enough to destroy reputations, as demonstrated by the closing of the Knoedler Gallery. However, as mentioned above, the hoaxes themselves sometimes become famous in their own right due to the mastery of the forgery. For example, an exhibition is being planned for fake Amedeo Modigliani statues to be exhibited in Livorno, Italy, the artist’s hometown. Three carved heads were found in July 1984 as part of a hoax orchestrated by local students. Modigliani is famously a popular target for art forgers, and thus this episode become part of the legacy of Modigliani himself and his hometown of Livorno. Commenting on the plan for this exhibition, Livorno Culture Councilor Mario Tredici stated, “For a long time we have wanted to tell a story that was unique in the 20th century and is sure to be a tourist attraction.”

Today, there is no unified national or international approach to curbing the forged art market. The current debate in India, where the art market is currently encountering an unprecedented number of uncovered fakes, might be helpful to informing policy decisions in the United States, where cases concerning art forgeries are fractured across jurisdictions and courts. Art experts in India have called for contradictory safety measures. Some express favor for creating a national authentication body in charge of art sales. However, other scholars have expressed a less common alternative preference for deregulating the currently tightly regulated art market in India. In a recent Op-Ed, Girish Shahane, Artistic Director of the India Art Fair, explains how the tightly controlled national art market in India has stunted the development of the art market and encouraged the proliferation of fakes through the promise of great profit: “Expertise and transparency have been strangled by the Antiquities Act, which makes the owning and selling of antiquities difficult, their export illegal, and restricts trade in the work of a number of modern artists labeled national treasures . . . While there is no silver bullet solution for the problem of forgeries, partial fixes emerge as a natural consequence of trade.” This proposal suggests that greater cooperation and unified trade practices amongst art industry professionals around the globe would create mutual responsibility. The opaqueness of the art market is in part responsible for the circulation of forged artwork, and, instead of effectively shutting down the art market through the creation of regulatory bodies, perhaps it is time for the art world to acknowledge the damaging effects of fakes and open up new pathways to international discussion.

Sources:

 

About the author: Emma Kleiner is a second-year student at Stanford Law School.

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

Why Ronald Lauder Is Right About Nazi-Looted Art in Museums

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*From the Editors: The following article  first appeared on ArtNet. It is a response to two recent articles, an editorial authored by Ronald S. Lauder, a New York businessman and art collector, and a related commentary by Nicholas O’Donnell, Boston-based attorney and editor of Art Law Report. The article is reprinted with the permission of the author, attorney for Leone Meyer.

By Pierre Ciric*

In his article titled “Lauder Editorial on Stolen Art and Museums Fails the Glass House Test,” Nicholas O’Donnell attempts to respond to Ronald S. Lauder’s editorial published in the Wall Street Journal on June 30, 2014, titled “Time to Evict Nazi-Looted Art From Museums.”

O’Donnell attempts to find legal shortcomings in Lauder’s editorial, which simply expresses the need for art museums to act responsibly by returning Nazi-looted artwork instead of raising technical defenses and mere pretexts to deny the rights of the claimants.

In his article, O’Donnell refers to the ongoing case brought by Léone Meyer against the University of Oklahoma, among other defendants, to obtain the restitution of “La bergère rentrant des moutons” (Camille Pissarro, 1886), currently on permanent display at the Fred Jones Jr. Museum of Art in Norman, Oklahoma.

Although O’Donnell—counsel to David Findlay, Jr. Gallery, a defendant no longer involved in the case—recognizes that the recent court decision is limited to whether the Oklahoma defendants could be sued in New York, he repeatedly brings up a 1953 Swiss court decision involving Camille Pissarro’s La Bergère as grounds for why Léone Meyer’s claim should fail, and why Mr. Lauder’s argument is baseless.

O’Donnell’s argument fails the common sense test. First, no one disputes that the Nazis stole La Bergère from Léone Meyer’s family.

Second, the 1953 Swiss court decision was not decided based on a late claim, as O’Donnell argues, but was decided against Léone Meyer’s father because he could not prove the “bad faith” of the art dealer who acquired La Bergère after it crossed the Swiss border from France.

Third, prior Swiss decisions involving looted art have long been held as doubtful or baseless in several U.S. jurisdictions. Even the Swiss government itself recognized in 1998 that the deck was stacked against claimants who wanted to file art restitution claims in Switzerland after World War II. New York courts have found/determined that “Swiss law places significant hurdles to the recovery of stolen art, and almost ‘insurmountable’ obstacles to the recovery of artwork stolen by the Nazis from Jews and others during World War II and the years preceding it.”

Finally, O’Donnell misses the point of Mr. Lauder’s editorial. As French government officials have recently stated in a public forum dedicated to France’s efforts to track and restitute looted art, the time for “clean museums” has come. Hiding behind technicalities and procedural loopholes to delay basic justice, i.e. restitution of looted property, is not morally appropriate, even less so when public institutions are involved.

Ronald Lauder is right. It is time for museums to do the responsible thing. It is time for museums to “clean” their collections of any tainted artwork by returning Nazi-looted artwork.

Sources:

Abut the Author: Pierre Ciric is a New York attorney, the founder of the Ciric Law Firm, PLLC, and a board member of both the French–American Bar Association and the New York Law School Alumni Association.

One Matisse, Two Matisse: The Steal that it is this Summer

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By Irina Tarsis*

Matisse died in 1954; he was 84. The following quote is attributed to Matisse, and as he dreamt of being palatable to a diverse audience, he succeeded in winning over the hearts of many.

What I dream of is an art of balance, of purity and serenity, devoid of troubling or depressing subject-matter, an art which could be for every mental worker, for the businessman as well as the man of letters, for example, a soothing, calming influence on the mind, something like a good armchair which provides relaxation from physical fatigue.

First trained in law and later a student of art, already during his lifetime Matisse proved to be popular in different circles and demographics. His works were sold by Paul Rosenberg and Daniel-Henry Kahnweile, famous Parisian dealers. He enjoyed patronage of the who’s who among the major art collectors of the twentieth century, including Alfred Barnes and Sergei Shchukin. Indeed, he was a prolific artist with a long career, and thus those who wished to have a Matisse — private collectors, institutions, auction houses, hoarders, thief’s and forgers — could enjoy fruits of the new master’s imagination and labor.

I.

Screen Shot 2014-07-08 at 4.53.58 PMOver the last couple of years, Venezuela has been in the news mostly due to political unrest, economic crisis and violence against street protestors. Serving as some positive news for a change, earlier this month numerous media sources  heralded the return of the 1925 Henri Matisse painting “Odalisque in Red Pants” to Venezuela. The painting, first acquired from a New York gallery in 1981 by the Caracas Museum of Contemporary Art in Caracas, disappeared from the museum sometime around 2002. Its loss was discovered only after the original “Odalisque in Red Pants” was offered for sale in Florida, meaning that the one on display in Caracas was a skillful forgery. (The story of the Caracas Matisse has been documented by Marianela Balbi). In 2012, the United States government seized the original painting in a sting operation in Miami. Almost two years later to the day, on 7 July 2014, the painting was finally returned to Venezuela.

According to some news sources, the authenticity of the piece was verified by “officials from the ministries of Foreign Affairs and Culture, the District Attorney, the Institute of Cultural Heritage, National Museums Foundation and the Body of Scientific, Penal and Criminal Investigations.”

II.

Screen Shot 2014-07-10 at 4.27.13 PM
C. Gurlitt/Matisse’s “Seated Woman”

Also in 2012, Bavarian authorities seized an extensive collection of works of art on paper and oil paintings from a private residence in Munich. One of these works that became a poster child for the Schwabing Art Fund, aka the Gurlitt Trove, was Matisse’s 1921 portrait of a seated woman “Femme Assise/Sitzende Frau.” The discovery of the Fund/Trove containing works by famous artists, as well as the glacial pace of investigating the origins of these artworks following the discovery captured the imagination of provenance researchers, art lawyers, potential heirs and others.

We have reported already that the Task Force appointed to investigate the trove has little time to work through hundreds of oils and works of art on paper. However, they already concluded that “Femme Assise” was looted during World War II.

In a Press Release from 11 June 2014, the Head of the Task Force, Dr. Ingeborg Berggreen-Merkel, indicated that while the Task Force could not establish exactly under what circumstances and when the painting came into Gurlitt’s possession. Nevertheless, it was illegally taken from the collection of a Jewish French art dealer Paul Rosenberg. The decision as to whether the painting will be returned to the Rosenberg’s heirs or not by Gurlitt’s appointed heir “unrestricted and unfettered,” the Bern Art Museum in Switzerland has not been announced yet.

III.

In conclusion: before more stolen, forged or other Matisse paintings come to light, mix yourself a Matisse cocktail, courtesy of Drinks Mixer:

  • 2.5 oz Stoli Ohranj vodka
  • some orange juice
  • some Chambord raspberry liqueur
  • 1 twist lime peel

Sources:

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

 

Case Review: Frank Kolodny v. James Meyer, Fred Dorfman, and Dorfman Projects LLC (May 2014)

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By Jill A. Ellman*

2014-07-07A complaint filed in the Southern District of New York by Frank Kolodny on May 8, 2014, contains allegations for violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and fraud in connection with the sale of artwork stolen from the studio of artist Jasper Johns, a major twentieth-century painter and sculptor.  As alleged in the complaint, the works were sold by Fred Dorfman and Dorfman Projects LLC; Kolodny purchased one of these sculpture in 2009.

In the past three decades, Johns has achieved great standing in the art marketplace. His work has been sold to private collectors and institutions in the high millions, with private sales valued at over 100 million USD.
The plaintiff, Frank Kolodny brought the lawsuit against defendants James Meyer, the former studio assistant of Jasper Johns, as well as Fred Dorfman, a well-known specialist in twentieth century art, and his gallery, Dorfman Projects LLC (collectively, the “Dorfman Defendants”).  Kolodny claims that the defendants falsely represented to prospective buyers, including Kolodny himself, that Meyer received twenty-two individual pieces created by Jasper Johns as a gift and produced accompanying fraudulent documents.

The complaint alleges that Meyer and the Dorfman Defendants engaged in an enterprise affecting interstate and foreign commerce, thus violating  RICO.  Specifically, from September 2006 to February 2012, the plaintiff contends that the defendants participated in a pattern of racketeering with the common goal to profit from the stolen artwork and used similar methods in order to perpetrate their fraud upon prospective buyers.  If successful with his RICO claim, Kolodny may be awarded  triple damages in the form of civil penalties.

In addition to the RICO and conspiracy to commit RICO violations and common law fraud, Kolodny also asserts causes of action for aiding and abetting fraud (against the Dorfman Defendants),  and breach of warranty concerning title and provenance of the artwork sold by the Dorfman Defendants to Kolodny under N.Y. U.C.C. § 2-313(1) and §13.01 of the New York Arts and Cultural Affairs Law. Kolodny seeks compensatory damages, punitive damages and attorneys’ fees.  By way of background, the complaint describes that from 1985 to 2012, Johns employed Meyer as his assistant to support him in creating his art and aiding Johns with record keeping in his studio.  Meyer had complete access to inventory numbers for each of Johns’ completed works.  In 2012, Johns learned that Meyer was stealing from him and selling incomplete artworks without authorization. (See “James Mayer Arrested and Indicted in Jasper Johns Art Theft.”)  The Dorfman gallery sold the stolen works for $6.5 million, and Meyer collected a commission of $3.4 million.  Meyer was later indicted on criminal charges, including the interstate transportation of stolen goods and wire fraud.  The Dorfman Defendants were not named in the criminal action.  The indictment against Meyer was unsealed to the public in August 2013.

Kolodny asserts that the Dorfman Defendants could not have possibly believed Johns generously gifted artwork valued at $6.5 million.  Thus, he contends that the Dorfman Defendants ignored significant red flags in agreeing to sell Meyer consignments: not only did the artwork lack an exhibition history, but Meyer insisted that the sale of any artwork remain confidential and prohibited the buyer from selling, loaning or exhibiting the artwork for an eight-year period.  Instead of conducting proper due diligence regarding the provenance of the stolen artwork, Kolodny asserts that the Dorfman Defendants  understood the risk they faced and demanded an exorbitant commission in the form of 50% of the sale proceeds, exceeding the standard amount of commission paid to dealers for consigning artwork from private collections.  Moreover, the Dorfman Defendants purportedly assisted in perpetrating the fraud by fabricating documents attesting that the stolen artwork was indeed gifted to Meyer.

Apparently in April 2009, the Dorfman Defendants contacted art dealer Francis M. Naumann to discuss an available Jasper Johns drawing. Naumann on behalf of his client, Kolodny, decided to purchase the drawing for the value of $400,000 after being reassured by the Dorfman Defendants that very few similar works existed and would appear on the market. When Kolodny purchased the drawing, he agreed to keep it in his collection, neither selling nor loaning it for an eight-year period, because Meyer, as an employee of Johns, represented that Johns would be offended if he learned that his employee sold his “gift.”
According to Kolodny, in connection with the sale, the Dorfman Defendants and Meyer sent Kolodny an affidavit attesting to the authenticity of the artwork.  The affidavit also represented that Meyer owned the drawing and had the authority to sell it.  In addition, the Dorfman Defendants represented that the drawing would appear in an upcoming Jasper Johns catalogue raisonné, attesting to the drawing’s authenticity.  As requested by Kolodny, thedefendants forwarded an image purporting to be a page from Johns’ studio ledger indicating that the drawing was in Johns’ archive.  Because the drawing was stolen and will not appear in an upcoming Jasper Johns catalogue raisonné as represented, Kolodny claims that his drawing is unsaleable and valueless.

Kolodny is an unfortunate, potential example of a bona fide purchaser who believes that he has taken the extra-precautionary steps and exercised due diligence in securing an artwork, but who may have been duped in the process regardless of any appropriate safeguards that he took.  By bringing a RICO claim, Kolodny hopes to materially increase his potential damage award.  This case may be compared to lawsuits brought by plaintiffs who were allegedly defrauded in connection with the sale of works sold by the Knoedler Gallery and its agents.  See, e.g.,  De Sole v. Knoedler Gallery, LLC  et al., Case No. 12 cv 2313 (S.D.N.Y. Sept. 30, 2013).  Unlike here, the De Sole plaintiffs were sold a fake, unauthentic work (the De Sole plaintiffs believed they were purchasing a work created by the artist Rothko).  Similar to this case, the De Sole plaintiffs also brought claims under RICO and common law fraud, which were upheld by the Southern District in September 2013.  In particular, the Southern District found that the plaintiffs’ RICO and fraud claims to sell fake artworks were adequately pleaded because the plaintiffs showed evidence that the Knoedler defendants were aware of the misrepresentations regarding the provenance and authenticity of the purchased artworks.

Kolodny’s RICO and fraud claims may likewise survive a motion to dismiss if the Southern District finds that his allegations establish that the Dorfman Defendants engaged in a scheme to defraud potential buyers.  For example, the fact that the Dorfman Defendants went out of their way to represent that the Johns work would appear in an upcoming catalogue raisonné, sought affidavits attesting to the fact that Meyer owned and had the right to sell the work, and produced a page from Johns’ studio ledger indicating that the drawing was in Johns’ archive, may all be indicators that the Dorfman Defendants were aware of their misrepresentations to establish a sufficiently pleaded RICO or fraud claim, rather than mere negligence.

Kolodny is represented by Judd B. Grossman, Esq. of Grossman LLP.  Adam D. Mitzner, Esq. of Pavia & Harcourt LLP has made an appearance on behalf of the Dorfman Defendants.

Sources:

About the Author: Jill A. Ellman, Esq. is an associate at Tressler LLP focusing in the area of professional liability insurance coverage.  She maintains an active interest in art law.

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

Case Review: Schoeps v. Free State of Bavaria (June. 2014)

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By Chris Michaels*

P. Picasso, "Madam Soler" (1903)
P. Picasso, “Madame Soler” (1903)

 

On 27 June 2014, Judge Jed. S. Rakoff of the Southern District of New York issued an order finding that the court did not have subject matter jurisdiction to decide on the merits a Nazi-era looted art case. This case was brought by the heirs of the late Jewish banker, Paul von Mendelssohn-Bartholdy, against the Free State of Bavaria for a Picasso painting titled, Madame Soler.

The plaintiffs in this case, Julius H. Schoeps, Britt-Marie Enhoerning, and Florence von Kesselstatt, argued that Mendelssohn-Bartholdy was forced to part with his artwork in 1934 after two years of Nazi persecution. He transferred possession of Madame Soler to art dealer Justin K. Thannhauser, who remained in possession of the painting for the next 30 years. In 1964, Thannhauser, who at that time had relocated to New York City, met with Halldor Soehner, a Senior Curator of the State Paintings Collections Munich, an entity operating under the Bavarian State Ministry for Education and Cultural Affairs (the “Ministry”). Soehner’s New York trip was pre-approved by the Ministry.

Upon Soehner’s return to Germany in June of 1964, Soehner and Thannhauser began planning their next meeting, which was to take place in Europe. Soehner then sought approval from the Ministry for the meeting with Thannhauser, which occurred in France in August of 1964. The Bavarian Ministry approved Soehner’s trip to France to conduct negotiations and in an August 1964 letter to Soehner, Thannhauser confirmed the purchase of Madame Soler by the Bavarian State Paintings Collections. The purchase was publicized in the museum publications as well as local news outlets. The purchase price of the painting was 1,775,000 Swiss Francs. Additionally, the Letter Agreement between the two was signed in Europe, which the court surmised was an attempt by Thannhauser to avoid U.S. taxes, and the painting was located in Switzerland at the time of the sale. Further, a Lichtenstein entity “EBA, Vaduz,” which was controlled by Thannhauser, transferred the painting to the Bavarian State Paintings Collections and received payment on behalf of Thannhauser.

The issue decided by the instant order was whether jurisdiction over the Free State of Bavaria was appropriate under the Foreign Sovereign Immunities Act (“FSIA”).  Under the Act, jurisdiction over a foreign state is allowed in three circumstances:

  1. where a plaintiff’s claim is “based upon” “a commercial activity carried on in the United States by the foreign state”;
  2. where a plaintiff’s claim is “based upon” “an act performed in the United States in connection with a commercial activity of the foreign state elsewhere”; or
  3. where “an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere causes a direct effect in the United States.”

Here, the Court ruled that the FSIA could be circumvented because the exceptions to allow jurisdiction over a foreign sovereign and its entity did not apply under any of the above circumstances where no agreement between Soehner and Thannhauser for sale of the painting was reached in New York and where Soehner did not take any concrete action toward the purchase of the painting until his return to Germany. With respect to the first prong of jurisdiction under the FSIA, the Court found that the merits of this suit, should they be reached, were not “based upon” Bavaria’s acquisition of the painting, “let alone activity in the United States.” The Court points out that the essence of Plaintiff’s complaint is that the title to the painting never rightfully passed to Thannhauser because the painting was consigned by Mendelssohn-Bartholdy as a forced transaction.

Thus, the Court ruled, the merits of the case would necessarily focus on the circumstances of the forced sale. The Court went on to note that Bavaria would not even be the defendant in the case “but for the fact that Bavaria purchased the painting from Thannhauser in 1964.” The Court held, among other things, that this “but for” reasoning was insufficient to satisfy the FSIA’s “based upon” requirement.

With respect to the second prong, the Court held that it is “generally understood to apply to non-commercial acts in the United States that related to commercial acts abroad.” This prong was deemed inapplicable by the Court, however, because the Plaintiffs’ failed to argue that any non-commercial acts by Bavaria formed the basis of the suit.

Finally, under the third prong, the court noted that two requirements must be satisfied to confer jurisdiction: 1) “there must be an act outside the United States in connection with a commercial activity of [Bavaria] that cause[d] a direct effect in the United States and (2) [plaintiffs’] suit must be based upon that act.” The Court held that the elements of this prong were not satisfied where plaintiffs’ only arguments were that Bavaria’s purchase of the painting would have a negative impact on the New York art market and that Bavaria’s activities furthered a conspiracy to evade United States taxes. The Court, therefore, dismissed the lawsuit for lack of jurisdiction.

Plaintiffs were represented by Thomas J. Hamilton and John J. Byrne, Jr. of Byrne, Goldenberg, and Hamilton, PLLC of Washington D.C., and Defendant was represented by Andreas A. Frischknecht, James M. Hosking, and Andrew L. Poplinger of Chaffetz Lindsey, LLP of New York.

Sources:

  • Opinion and Order, Schoeps v. Free State of Bavaria, Case No. 13 Civ. 2048 (JSR) (S.D.N.Y June 27, 2014).
  • The Foreign Sovereign Immunities Act, 28 U.S.C. § 1605(a)(2).

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 @CMichaels88.

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

Detroit Institute of Arts Fights to Safeguard its Collection (Still)

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By Chris Michaels

On Tuesday, 27 May 2014, the Detroit Institute of Arts responded to the objections made by financial creditors of the City of Detroit (the “City”) to a proposed plan that would protect its collection from sale. The Detroit Institute of Arts’ (“DIA”) collection has been at the center of controversy in Detroit’s Bankruptcy proceedings and whether the collection can be sold to satisfy its financial obligations has been hotly debated.

In the Response, attorneys for the DIA explained why the Museum’s collection should not be the subject of a forced sale to satisfy the City’s financial creditors. The subject of the filing hinges on the issue of whether the City’s Fourth Amended Plan of Adjustment (the “Plan”) should be enforced. Part of this Plan stipulates that outside funders will provide at least $466 million USD to address the City’s obligation to its pensioners. The provision of the funds, however, is contingent upon the City transferring any interest it might have in the Museum’s collection to the DIA, which then must keep the collection in Detroit in perpetuity. Objectors to this plan, including certain bondholders, creditors, and the insurer of City obligations, argued that the DIA collection is a “non-core” asset, which can be sold to satisfy the obligations of the City in its Bankruptcy.

In the Response, the DIA set forth its argument in support of the Plan. At the heart of its argument, the DIA contends that the collection: 1) is not an asset of the City; 2) any attempted sale of the collection would result in protracted litigation; and 3) the proposed Plan is in the best interests of both the City and its creditors.

In support of its claim that the collection is not a City asset that can be sold to satisfy its obligations, the DIA argues that the collection is, in fact, held in a Charitable Trust. As part of this line of reasoning, the DIA claims that under its Articles of Incorporation, as well as the 1885 Act that created the DIA, a Charitable Trust was established for the benefit of the public stipulating the DIA as the trustee. Under the Charitable Trust that was established, the DIA, as trustee, does not have the power to sell the collection to satisfy the debts of the City. Additionally, the DIA noted that under its 1997 Operating Agreement, any proceeds from deaccessions must be used solely to acquire additional artwork. The DIA also argued that the acts of donors confirmed the existence of a Charitable Trust and that through conveyance documents and other records, the intent of the donors was to benefit the Museum and its charitable purpose, not to benefit the municipality.

The DIA also argued that the collection is not an asset of the City because the collection is protected by an Implied Trust. The DIA contends that an Implied Trust was created between the City and the DIA through such actions as the solicitation of charitable donations for the Museum, adopting policies limiting deaccession, and representing to the Public that the City held the collection in trust. The DIA also maintained that the collection was protected by the Public-Trust Doctrine, whereby governmental entities have a duty to protect resources held in trust for the public.

In the second prong of its argument in support of the Plan, the DIA asserted that any attempted sale of the collection would result in protracted litigation. Here, the DIA in essence threatened that if the City tried to transfer its interest in the collection in an attempt to satisfy its creditors, the DIA would file suit to block the sale. Because of the expense associated with the litigation, the DIA argued that enforcing the Plan is a more attractive alternative than further litigation.

Finally, the DIA made the claim that the Plan would be in the best interests of the City and the creditors. This argument is bolstered by the fact that outside funders will provide $466 million to the City to address its obligations and because the alternative to the Plan, namely the attempted sale of the collection, would result in the aforementioned protracted litigation.

The Response in support of the Plan by the DIA ended with an argument that the Museum is more than just a fiscal asset of the City. The filing reads:

The Museum is a core feature of the City’s future. It is the Cultural cornerstone of Midtown Detroit, providing a stable anchor for the cultural district and for the surrounding neighborhoods. The Museum draws economic investment to Midtown Detroit, is a selling point for business attempting to attract and recruit talent to the City, and is an important factor in decisions by businesses that are seeking to locate in the City. 

The fate of the DIA collection is scheduled to be decided by trial on 24 July 2014.

The DIA is represented by Arthur T. O’Reilly, Scott B. Kitei, and Daniel N. Adams from Honigman Miller Schwartz and Cohn LLP, and Richard Levin of Cravath Swain & Moore LLP.

 

Sources:

Response of the Detroit Institute of Arts to Objections to the City’s Amended Plan of Confirmation, In Re: City of Detroit, Michigan, Case No. 13-53846 (Bankr. E.D.M.I. May 27, 2014). 

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 @CMichaels88.

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

Art Law Visiting the Non-profit Side: On Qualifying for 501(c)(3) Status as an Arts Organization

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By Benjamin Takis*

2014-05-25 collage

Background

New non-profit organizations often find that the world is not a hospitable place. While innovation, entrepreneurship, and risk-taking by new for-profit companies are lauded, fledgling non-profits typically struggle to gain the acceptance and support of private foundations, donors and others in the non-profit community. There is, after all, only a limited supply of grants and donations to fund charitable, artistic, and educational endeavors. Furthermore, the administrative burden of forming and administering a non-profit can be staggering. New non-profits are therefore often advised to pair up with an existing organization, use a for-profit structure, or explore other alternatives before forming a new entity and applying to qualify under section 501(c)(3) of the Internal Revenue Code (the “Code”).

Despite these challenges, arts organizations share certain traits that can help them thrive as non-profit 501(c)(3) organizations, with fewer of the hurdles faced by other kinds of non-profits. First, while many organizations rely largely on foundation grants and private donations, arts organizations can raise funds from ticket sales to performances, exhibits, and other events. For many kinds of organizations, these “fee-for-service” revenue sources can trigger “unrelated business income tax” or endanger 501(c)(3) status under the “commerciality doctrine” applied by the Internal Revenue Service (“IRS”) and the courts. However, these revenue sources are generally consistent with the tax-exempt status of arts organizations. Additionally, these types of revenue sources can more easily satisfy the “public support” tests that enable an organization to qualify as a public charity, and thereby avoid classification as a private foundation and the stringent oversight to which private foundations are subjected.

The Benefits and Burdens of 501(c)(3) Status

501(c)(3) is a special tax status under federal law, generally available to organizations formed and operated for a charitable, educational, scientific or religious purpose, and promotion of the arts is recognized as a valid educational purpose. Treas. Reg. § 1.501(c)(3)-1(d)(3)(ii), Example 4 (Educational organizations include “[m]useums, zoos, planetariums, symphony orchestras, and other similar organizations,” provided that the organizations otherwise satisfy the requirements of section 501(c)(3) of the Code). However, before embarking on the 501(c)(3) qualification process, it is important to carefully consider whether the benefits of 501(c)(3) status are worth the burdens.

There are three legal benefits to having 501(c)(3) status: (1) the organization’s net revenue (after expenses) is generally not subject to tax; (2) contributions to the organization are eligible for the charitable deduction; and (3) the organization is eligible for grants from private foundations.

These benefits are not quite as advantageous as they may appear. Most non-profits (including arts organizations) do not have large amounts of excess revenue – most struggle to earn enough revenue to pay their expenses. Therefore, the tax exemption on net revenue may not be crucial. Second, while the charitable deduction is a powerful incentive for individuals inclined to give money to non-profit organizations, it is still a difficult task to convince people to give. The charitable deduction tends to be important only when an organization’s Board of Directors has a strong and committed network of high-wealth individuals. Lastly, it can be difficult to get grants from private foundations. Finding grant opportunities takes significant research, and the grant writing process requires preparation, perseverance, and commitment.

Maintaining 501(c)(3) status can also be quite burdensome. A 501(c)(3) organization must be run by a Board of Directors (generally 3 or more people) in accordance with Articles of Incorporation, Bylaws, and various corporate policies that comply with requirements set forth under federal tax law and state non-profit corporation law. In addition, any compensation to Directors or Officers must be closely scrutinized to ensure that such payments are reasonable. And complex tax filings called the Form 990 (or Form 990-EZ) are generally required for organizations with gross revenue exceeding $50,000 per year, and are open to public inspection. (Organizations whose annual gross receipts are normally $50,000 or less, file a much simpler electronic form called the Form 990-N). These and other administrative difficulties are not typically worth the trouble unless 501(c)(3) status would significantly enhance an organization’s fundraising capabilities, or at least its image in the arts community.

Designing a Program of Activities to Qualify under 501(c)(3)

An arts organization that has thoroughly considered the benefits and burdens of 501(c)(3) status and wishes to move forward with the qualification process will need to design a program of activities consistent with 501(c)(3) status. It is important to be aware of which types of activities are acceptable and which activities raise suspicions at the IRS, and be able to show the IRS several bona fide activities that fit squarely within the traditional notions of a 501(c)(3) arts organization.

The exemption under section 501(c)(3) for arts organizations is based on the statutory exemption for “educational” organizations, so educational activities carry significant weight in the approval of 501(c)(3) status. Examples of educational arts organizations include:

  • An organization formed to promote the advancement of young musical artists by conducting weekly workshops, and sponsoring public concerts by the artists. Rev. Rul. 67-392, 1967-2 C.B. 191.
  • An organization formed to promote public appreciation of group harmony singing by holding frequent meetings of members where they receive training and instruction in vocal harmony and opportunities to practice under trained supervision. Rev. Rul. 66-46, 1966-1 C.B. 133.
  • A dance school with a regular faculty, daily comprehensive curriculum, and a regularly enrolled body of students. Rev. Rul. 65-270, 1965-2 C.B. 160.

Educational activities can also include individual instruction, or the dissemination of instructional materials for free or for a nominal charge. See Rev. Rul. 68-71, 1968-1 C.B. 249 (approving the 501(c)(3) status of an organization that provided career education by distributing educational publications at a nominal charge and providing free vocational counseling services).

Public exhibits or performances are also typically valid 501(c)(3) activities, provided that steps are taken to ensure that the selection of artists is disinterested (i.e. the organization is not merely a vehicle for showing the work of founders, directors or other insiders of the organization), and provided that the artists or works are chosen for their artistic merit rather than their ability to appeal to a mass audience. See Plumstead Theatre Soc’y, Inc. v. Comm’r, 74 T.C. 1324, 1332-1333 (1980), aff’d 675 F.2d 244 (9th Cir. 1982) (contrasting commercial theaters, which “choose plays having the greatest mass audience appeal … run the plays so long as they can attract a crowd …[and] … set ticket prices to pay the total costs of production and to return a profit,” with 501(c)(3) theaters, which “fulfill their artistic and community obligations by focusing on the highest possible standards of performance; by serving the community broadly; by developing new and original works; and by providing educational programs and opportunities for new talent.”). It helps if at least some of these exhibits or performances are open to the public for free.

For example, the IRS has approved the 501(c)(3) status of the following organizations:

  • An organization whose sole activity was sponsoring an annual art exhibit of artists selected by a panel of qualified art experts. Rev. Rul. 66-178, 1966-1 C.B. 138.
  • A filmmaking organization that organized annual festivals to provide unknown independent filmmakers with opportunities to display their films. Rev. Rul. 75-471, 1975-2 C.B. 207.
  • An organization that presented public jazz concerts featuring aspiring jazz composers and high school students performing alongside established jazz musicians. Rev. Rul. 65-271, 1965-2 C.B. 161.
  • A touring repertory theatre company that focused on works that were part of college curricula. Rev. Rul. 64-175, 1964-1 C.B. 185.

Note that the IRS views the exhibition of art much differently than the sale of art, especially with respect to the visual arts. The IRS typically denies 501(c)(3) status to art galleries that engage in the sale of art for a commission. See Rev. Rul. 76-152, 1976-1 CB 151 (rejecting the 501(c)(3) status of a gallery formed to promote modern art trends by exhibiting works of modern artists and selling the works on consignment basis with the artist setting the selling price and the organization keeping a 10% commission, even though this commission was lower than that charged by commercial entities and the gallery planned to supplement its revenue through donations); Rev. Rul. 71-395, 1971-2 CB 228 (rejecting the 501(c)(3) status of a gallery formed and operated by approximately 50 artists for the purpose of exhibiting and selling the work of the founders).

Gallery sales activities are permitted only under very limited circumstances when sales activities are sufficiently minor in comparison to educational and other valid 501(c)(3) activities. Goldsboro Art League, Inc. v. Comm’r, 75 T.C. 337 (1980) (approving the 501(c)(3) status of a gallery that engaged in some sales for commissions in addition to educational activities, based on the following factors: (1) there were no other museums or galleries in the area, thus, the exhibition of art works showed a purpose primarily to educate rather than to sell and the selling activity served merely as an incentive to attract artists to exhibit their work; (2) works were selected by an independent jury for their representation of modern trends rather than salability; (3) the organization demonstrated that educational activities were its priority; (4) the art sales were not conducted at a profit; and (5) of more than 100 works of arts exhibited in the organization’s galleries, only 2 members of the organization had their art exhibited).

Most 501(c)(3) arts organizations focus predominantly on education and/or public exhibits or performances, but other types of activities can be acceptable as well. For example, the awarding of grants to aspiring artists and students is a permissible 501(c)(3) activity, provided that procedures ensuring disinterested selection of winners are developed and scrupulously followed. See Rev. Rul. 66-103, 1966-1 C.B. 134 (approving the 501(c)(3) status of organization formed for the purpose of making grants available to writers, composers, painters, sculptors, and scholars for projects in their respective fields which they would not otherwise be able to undertake or finish due to the lack of funds. In awarding grants, preference was given to persons showing distinction or promise in their respective fields, and the recipients promised to make their work available for the benefit of the public in ways customary and appropriate to the particular work. The organization received no financial benefit from these grants).

The IRS has also approved of activities promoting the appreciation of art by less traditional means, such as the recording and sale of obscure classical music pieces to educational institutions, Rev. Rul. 79-369, 1979-2 C.B. 226, and a museum’s sale of greeting cards displaying printed reproductions of selected works from the museum’s collection and from other art collections. Rev. Rul. 73-104, 1973-1 C.B. 263. However, these types of non-traditional promotional activities should be approached with caution, as they implicate difficult issues that can lead to unpredictable results from the IRS. See e.g. Rev. Rul. 76-206, 1976-1 C.B. 154 (rejecting the 501(c)(3) status of an organization formed to generate community interest in classical music by urging the public to support the classical music program of a for-profit radio station).

In summary, when applying for 501(c)(3) status, an arts organization should be prepared to describe several activities similar to those approved by the IRS. There should be at least some educational component, whether through workshops, classes, online publications or tutorials, or other means. It is helpful to show engagement with the public or local community through free exhibits or performances, and to focus on art that lacks mainstream commercial viability. Lastly, an organization founded or run by artists should make sure to focus on a wide variety of artists rather than just its founders or members.

About the Author: Benjamin Takis is the founder and principal attorney of Tax-Exempt Solutions, PLLC. He may be reached at btakis@taxexemptsolutions.com.

Disclaimer: This publication is provided for educational and informational purposes only and does not contain legal advice. Accordingly, you should not act on any information provided without consulting legal counsel. To comply with U.S. Treasury Regulations, we also inform you that, unless expressly stated otherwise, any tax advice contained in this publication is not intended to be used and cannot be used by any taxpayer to avoid penalties under the Internal Revenue Code, and such advice cannot be quoted or referenced to promote or market to another party any transaction or matter addressed in this publication.

Case Review: Scher v. Stendhal Gallery, Inc., et al.

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By Chris Michaels, Esq.

Puala Scher, “South America”

A recently decided case out of the New York Supreme Court, Appellate Division, First Department may have some New York galleries re-evaluating the contracts they have with their artists. On 27 March 2014, the court decided whether Paula Scher, an artist, had ownership of 320 unsold fine-art silk-screen prints made from her paintings that the Gallery had printed for approximately $300,000. Based on the agreement between the parties, the court held that the Gallery had left itself exposed upon the agreement’s termination and, even though it had laid out the costs for production, Scher was the sole owner of the prints.

Plaintiff in the case, Paula Scher, a nationally known graphic designer, is also a well-recognized fine art painter. She has a BFA from the Tyler School of Art at Temple University in Philadelphia and has been a principal at Pentagram, one of the world’s largest independent design consultancies, since 1991. As a graphic designer, she has developed branding and marketing for clients including Coca-Cola, Perry Ellis, and Microsoft. Her artwork is in the permanent collections of some of the most distinguished museums in the United States, including the Museum of Modern Art, the Philadelphia Museum of Art, and the Denver Art Museum.

At the heart of the lawsuit Scher brought against the Stendhal Gallery, Inc., a New York art gallery established in 1990, was an agreement both parties entered into in 2005 for the sale of a series of 12 map-based paintings Scher created.  The consignment agreement between Scher and the Gallery indicated that the Gallery would sell the map paintings and any future works Scher might create during the agreement’s term.

Specifically, the agreement noted that, “[t]he Artist [Scher] appoints the Gallery to act as Artist’s exclusive agent in the following geographic area: exclusive worldwide for the exhibition and sales of artworks in the following media: original paintings / Works on Paper / limited edition prints published exclusively by Gallery and Digital / electronic art for computers.” While the written agreement was in effect, Scher and Maya Stendhal, at the time a principal of the Gallery, entered into a separate oral agreement whereby Scher granted the Gallery a license to produce prints based on Scher’s Map paintings. Pursuant to the second agreement, the Gallery would produce the prints at the Gallery’s expense and the proceeds of any prints that sold would be split with 90% going to the Gallery and 10% going to Scher.

After Scher and Stendhal entered into the second agreement, the Gallery then hired a printer to make the prints. The Gallery took possession of the prints from the printer and incurred approximately $300,000 in costs between printing and selling some of the prints. The prints were then advertised for sale for between $3,000 and $15,000. The Gallery generated $1,388,680 from sales of the Map paintings, but paid Scher only $15,000. Pursuant to the oral agreement, she was due $138,868.

In May of 2010, counsel for Scher notified the Gallery that the 2005 written agreement and the oral agreement were terminated and, at the same time, demanded that the Gallery return any unsold paintings and prints. Shortly thereafter, Scher initiated her lawsuit against the Gallery for, among other things, the unsold prints that the Gallery possessed.

In the underlying case, the Supreme Court’s initial judgment granted ownership of the 320 unsold prints to Scher. At the same time, however, the court ruled that the Gallery was entitled to 90% of the proceeds of the re-sale value of the unsold prints. In the ruling, the Court looked to New York Arts and Cultural Affairs Law §12.10, which deals with artist-merchant relationships. The court held that under the law, Scher owned the prints but that it did not defeat the Gallery’s contractual right to 90% of their resale value. In response to the Court’s ruling, Scher moved for re-argument to eliminate the Gallery’s right to a portion of the resale value, among other things.

On re-argument, the Court held that the oral argument between Scher and the Gallery established a split of proceeds only at such time as the prints were sold. In its amended judgment, the Court granted Scher ownership of the 320 prints and held that the Gallery was not entitled to any share of the value of the unsold prints but was, however, entitled to recover the costs incurred in having the prints made. The Gallery appealed this ruling, seeking full ownership of the prints under the Uniform Commercial Code or, in the alternative, a 90% share of the resale value of the unsold prints.

On appeal, the Appellate Division did not look to either the UCC or the New York Arts and Cultural Affairs Law in deciding the case. Instead, it simply relied on the 2005 contract between Scher and the Gallery. The Court noted that the agreement provided that the Gallery would act as Scher’s “exclusive agent” for the exhibition and sales of the prints. Therefore, the Court reasoned, when it hired and paid the printer to make the prints, “it did so as Scher’s agent and, hence, fiduciary.”  The Court further reasoned that as Scher’s fiduciary, the Gallery was obligated to disclose to Scher that it would own the prints after they were made, if that is what the Gallery’s understanding was. The Court noted that if the Gallery wished to own the prints that it financed, it could have sought to reach a separate agreement with Scher regarding ownership. Further, the Court noted that the Gallery, “left itself exposed by going forward with the print deal based on only a vague, unwritten agreement that left nearly all of the terms up in the air . . . .”

Additionally, the Court stated that the Gallery, as a fiduciary, acted carelessly in dealing with its principal. The Court was especially hard-pressed to give any leeway to the Gallery as fiduciary because the 2005 written agreement provided that any modification of its terms must be in writing and signed by both parties.

Ultimately, the Court awarded full ownership of the unsold prints to Scher and held that she had no obligation to reimburse the Gallery for either printing costs or resale value. The Court’s ruling here should act to remind Galleries that under consignment deals such as this, before any substantial amount of money is laid out for the creation of prints, Galleries, as fiduciaries to the artists with whom they contract, should be very clear about their intentions to own unsold prints.

Plaintiff was represented by Judith M. Wallace, Jeffrey L. Loop, and Michael H. Bauscher of Carter Ledyard & Milburn LLP. The Gallery was represented by Michael C. Ledley and Melissa A. Finklestein of Wollmuth Maher & Deutsch, LLP.

Sources: 

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 @CMichaels88.

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

Conserving v. Rebuilding Afghanistan’s Bamiyan Buddhas

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By Lauren Bursey

feet of Bamiyan-Buddhas
Feet of Bamiyan-Buddhas
bamiyan valley
Bamiyan Valley

In March 2001, the Taliban, at the time the government in Afghanistan and later a terrorist group, ordered the destruction of the giant Buddhas, which had been carved into the Bamiyan Cliffs in the6th century. The Buddhas, standing 55m and 38m high, were a monumental expression of western Buddhism. The entire Bamiyan Valley had been an important spot for the Gandhara school of Buddhist art, an area which was a long-revered pilgrimage centre from the 1st to the 13th centuries. The Valley was determined by UNESCO to have “Outstanding Universal Value” and the Buddhas were designated a World Heritage site following a review in 2002. Since their destruction, the site has faced issues of reconstruction, insufficient funds, the need for continuing tourism in the Valley, and religious tension.

After the Buddhas were blown up, UNESCO tasked ICOMOS (International Council on Monuments and Sites) archeologists from Germany with restoring the niches in which the Buddhas had rested, as well as the network of caves in the Bamiyan Valley. To explain, ICOMOS is an entity created by UNESCO in 1964 and only acts in an advisory capacity to the broader UN organization, and thus UNESCO has the authority over ICOMOS to enforce their decision to stabilize the site. UNESCO mandated that the goal of this project was to ensure that the area was safe for visitors (no falling rocks, a railing, etc.), that the niches were not subject to further damage, and that what remained of the artifacts was properly preserved. The Afghan Government made it clear by asking UNESCO for aid that they are in need of funds in order to stabilize their historic sites, and furthermore that they are reliant upon the funding that international organizations such as UNESCO and ICOMOS can provide. It is important to note that in 2011, at the 10th Expert Working Group Meeting for the Safeguarding of the Cultural Landscape and Archaeological Remains of the Bamiyan Valley World Heritage Property, UNESCO decided not to rebuild the statues, arguing that they would be best remembered by their absence. Their decision was made in light of “the available scientific data and estimated financial requirement.” Nevertheless, according to UNESCO, ICOMOS took its mandate too far and started rebuilding the statutes. As a result, when it was discovered that the ICOMOS team had started to rebuild the legs of the Eastern statue, UNESCO furiously shut down the project.

A large part of the issue seems to stem from ICOMOS Germany overstepping its bounds with regards to what UNESCO had mandated. Yet statements by Afghan Government officials give support to ICOMOS’ actions. H. E. Omar Sultan, the Deputy Minister of Information and Culture of Afghanistan, made this remark at the UNESCO Forum, March 2 2011:

“I believe that if we are to undertake any sort of remedial measures to rebuild or

partially rebuild the statues of Bamiyan, it should be for this higher goal of the site of

Bamiyan as a symbol of memory of the tragedy of war and conflict in Afghanistan and

as a statement of peace and hope for a better future.”

For the Afghan administration, rebuilding one of the statues would be a symbolic victory over the militant Taliban. Not rebuilding the statue, the Afghans feel, would be akin to admitting defeat at the hands of the Taliban while depriving future generations of the opportunity to appreciate these monuments first-hand. Afghan monument protection law requires Afghan Government approval for changes made to heritage sites, which ICOMOS acknowledges, but due to funding control, UNESCO is the body with the real authority. Work was halted not because the Afghans had a problem with ICOMOS’ work, and thus ordered it stopped, but because UNESCO felt that ICOMOS was rebuilding rather than only stabilizing the site. The order to halt work was carried out despite the Afghan Ministry of Culture, the Bamiyan Tourism Association, and the Bamiyan deputy governor all being in agreement that at least one Buddha should be rebuilt. Further complicating the situation, UNESCO and the global heritage protection community are worried about offending Afghan Muslims in dealing with the Bamiyan Buddhas. Due to Islam’s ban on religious idolatry and anthropomorphic images, the monumental Buddhas were subjected to frequent harm over the years, so that by 2001, the statues were heavily pockmarked by bullet holes and missing their faces. While UNESCO is extremely sensitive to giving offense, this sensitivity hinders many restoration efforts, as ICOMOS has encountered. Contrary to UNESCO’s approach, current Afghan domestic policy seems intent upon a more progressive stance, which allows for multiple religious symbols to be displayed.

The Afghans and UNESCO can agree on at least one thing: the need for tourism in the Bamiyan Valley. The Valley’s importance to world heritage had made it a site to which tourists flocked, helped by the site’s presence on the World Heritage list, at least until the destruction of the statues. Since then, unsurprisingly, tourist visits have declined significantly, along with the much-needed revenue. UNESCO has plans to reinvigorate the area economically without rebuilding the Buddhas, including the building of a cultural centre and museum, a bazaar, and the restoration of the interconnected caves at the site of the ancient city Shahr-I Ghulghulah. Whether or not these plans have been discussed with the Afghan government and found appropriate by the Afghans has yet to be determined. Abdullah Mahmoodi of the Bamian Tourism Association, for his part, believes that rebuilding at least one of the two statues is the best way to encourage tourism.

The final large issue that UNESCO is struggling with is the ethical dilemma between restoration and reproduction. Perhaps most importantly, UNESCO officials claim that the niche in which ICOMOS was working had not even been stabilized prior to the archaeologists starting to restore the statue’s feet. Both Michael Petzet, leader of the German ICOMOS team and former head of ICOMOS, and Francesco Bandarin, UNESCO’s assistant Director-General for Culture, each report that the Afghan government was in full agreement with the aims and activities undertaken by their respective organizations. ICOMOS Germany’s report on the matter continues to emphasize that their “safeguarding and stabilizing” measures were carried out with the knowledge and consent of Afghan authorities and UNESCO representatives. Whether or not the feet should be restored depends upon the amount of shards which remain after the Buddhas were blown up, a quantity about which once again the two organizations disagree. Regardless of the exact number of shards however, little of the once-monumental statues seems to remain, leaving archaeologists in the precarious position of either leaving the site as-is, which UNESCO would prefer, or attempting to rebuild part or all of a statue, the attempt which led to the controversy.

The Venice Charter of 1964, the same year of ICOMOS’ establishment, outlines that only anastylosis, or “the reassembling of existing but dismembered parts” is permitted on excavation sites, rejecting reconstruction outright. Otherwise, there is the possibility that the ruin will be distorted and its integrity damaged. With a lack of pieces (or shards), there would be little to preserve and thus no way the statues could be rebuilt without starting from scratch. However, the 1970s saw reconstruction of the Buddha’s feet carried out during a restoration campaign by an Indian/Afghan team. According to ICOMOS’ report of July 2013, when the current ICOMOS team arrived on the scene, they determined that the best way to properly stabilize and reinforce the Eastern niche was to create a system whereby the rear wall was coupled with the remains of the statue, necessitating that the feet were rebuilt. In a New York Times article this past March, Petzet references the Roman Forum and numerous French cathedrals as places where renovation work leaned more to reproduction and re-creation than anything else. He believes that there is no reason why a similar approach could not also be employed in Afghanistan. UNESCO, on the other hand, feels that only that which can be preserved with original material should be, and would prefer to uphold the principles of the Venice Charter.

At present, there is only one other site in Afghanistan with World Heritage status, the Minaret and Archaeological Remains of Jam, which is also listed as a cultural site in danger along with the Bamiyan Valley, all at the request of the Afghan government. A site’s status as a property in danger provides it with access to further conservation funds and “encourages corrective action.” The World Heritage List includes 981 properties, a mix of both cultural and natural monuments, across 190 countries. A site can be removed from either or both lists if the characteristics of its original nomination no longer exist. Hopefully the confusion as to the mandate of the UNESCO/ICOMOS project in the Valley is resolved before the collapsing niches and deteriorating shards of the Bamiyan Buddhas permanently debase the historic site.

About the Author: Lauren Bursey is a BA candidate at the Trinity College, University of Toronto; she is working toward a double major in History and Classical Civilizations and Language Citation.

Sources:

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

Art Law – the Corporate Side: Sotheby’s Wins the Battle in the Delaware Chancery Court But Loses the Proxy War

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By Elizabeth Lash, Esq.

Screen shot 2014-05-14 at 7.45.26 AMIt’s a tale as old as time – or at least as old as a 1982 Keith Haring work: a multi-million dollar proxy fight between an incumbent board of directors and activist shareholders, battled through poison letters and poison pills. (Ed. Note: see Sources and Explanations for definitions of various corporate law terms).  In this instance, the tale revolved around Sotheby’s auction house, which, as a publicly held company, will, at the end of the day, have had to expend more than $15 million on this past year’s proxy fight with its activist shareholders.

For those who normally ignore shareholder elections, the fight for control over Sotheby’s was one to which it was worth paying attention.  Beginning in May 2013, several large, activist hedge funds began buying up shares in Sotheby’s: Third Point (run by Daniel Loeb), Marcato Capital Management (run by Richard (“Mick”) McGuire), and Trian Fund Management (run by Nelson Peltz).  Not only did the funds begin requesting private meetings with Sotheby’s management to discuss Sotheby’s future direction, but at least one (Marcato) announced in its 13D filing that it would discuss “various strategic alternatives.”

But then the tone changed dramatically: in October 2013, Daniel Loeb declared open season on the Board by publicly publishing a letter (as part of an amended Schedule 13D) addressed to William Ruprecht, CEO, President, and Chairman of Sotheby’s, in which Loeb listed all of the ways in which Ruprecht and the rest of his Board were overpaid and underperforming.

Not only did Sotheby’s board take umbrage at its publicly-disclosed potential valuation (a bit of irony in its reaction, considering Sotheby’s itself is in the business of valuing prized possessions for investors), but such a declaration spurred Sotheby’s to action in view of a perceived hostile take-over, or at least a bitter proxy fight: not long after the filing of Loeb’s “poison pen” letter, Sotheby’s created a shareholder rights plan that would allow only passive investors to purchase more than 10% in Sotheby’s.  (13G filers could purchase up to 20% of Sotheby’s shares, but 13D filers could not.)

A shareholder rights plan, or “poison pill,” is just one of the tools which companies may use to defend themselves from the threat of take-overs from apparently hostile outsiders.  Shareholder rights plans (i.e., seemingly a bit of a misnomer, since they are actually created and enforced by a board of directors), which became popular in the 1980’s as a tool to stave off hostile take-overs, are legal and enforceable in Delaware, as long as a board of directors has investigated the threat of such a take-over and has instituted a plan that is reasonable in relation to the perceived threat to the company.  A shareholder rights plan can be used to defend a company from unsolicited bids by severely diluting the position of any shareholder acquiring more than a specified proportion of a target company’s shares (in this case, 10%) without the prior approval of the company’s board.  Such a plan obviously encourages outside bidders to negotiate with the board, since only the board can redeem the rights plan if it approves of the offer.

In the spring of 2014, Loeb sought a waiver from the 10% threshold to purchase a greater number of shares, but the Board declined to do so, instead offering, at various points, Loeb or one of his nominees a seat on the Board.  Loeb, however, rejected the attempted settlements because appointment to one seat on the Board would have given Loeb only nominal control over the Board, and would have left him with little ability to influence the company’s direction.

Thus, discussions between the parties broke down in March 2014, and Loeb, along with several pension fund shareholders, brought suit to preliminarily enjoin Sotheby’s from holding its annual shareholder vote until the Delaware Chancery Court could rule on whether (a) the shareholder rights plan and (b) the Board’s refusal to grant a waiver from this plan were being used to unfairly benefit the incumbent Board in the upcoming shareholder election.

The final decision, just issued by Vice Chancellor Donald F. Parsons, Jr. of the Delaware Chancery Court in early May 2014, held that the Board acted reasonably when it created the plan, and when it enforced the plan (i.e., refused to grant a waiver from the plan to Loeb), in the face of the perceived threat in the form of a proxy fight by several of its largest shareholders.  Interestingly, although it appeared the Vice Chancellor saw the creation of a shareholder rights plan as being well within the Board’s rights, he found that the Board’s later refusal to grant a waiver was precipitously balanced on the edge of permissible behavior.

In coming to his decision, the Vice Chancellor struggled with conflicting Board minutes and Board member testimony, along with some evidence of animus between Ruprecht and Loeb (putting aside that Loeb appears to be a difficult person to work with anyway).  For instance, while Sotheby’s Board minutes (drafted by the Board’s attorneys), appeared to show how the shareholder rights plan and its refusal to grant a waiver fit exactly under prevailing precedent (even using the exact language of prior decisions relating to acceptable shareholder rights plans), deposition testimony by one Board member tended to indicate otherwise: that the refusal to grant a waiver may have been motivated more in maintaining control over the current Board than in protecting Sotheby’s from predatory behavior by outside hedge funds.  While the latter was perfectly acceptable as a reason for creating and enforcing a shareholder rights plan, the former would have been impermissible.

So what really weighed in favor of the Board and in the court’s rejection of Loeb’s request for a preliminary injunction of Sotheby’s annual shareholder elections?  The Vice Chancellor primarily discusses what he sees as relevant facts, namely, the effort to prevent “creeping control” of Sotheby’s without payment of a control premium; “collusive” ownership purchases by the outside funds; and the Board being made up of mainly independent directors.

Beyond the obvious (i.e., what the Vice Chancellor highlights), other factors appear equally important in the Vice Chancellor’s decision, even if they do not figure as prominently in the final analysis.  For instance, the Board’s attempts to settle with Loeb by giving him or others connected with him one or more seats on the Board appeared to persuade the Vice Chancellor that the Board had acted reasonably, despite distaste for Loeb and his methods.

As well, an important factor in the decision (and this is where smart counsel and financial advisors really count) is that the shareholder rights plan still permitted outsiders bidders to make an all-cash, all-shares tender offer.  Some Delaware courts have found that a refusal to make such an exception in a shareholder rights plan is unreasonable.  Thus, this factor may have also weighed heavily in favor of the Board when the Vice Chancellor found that the Board’s primary motivation in enforcing the shareholder rights plan was not to maintain control (even if, as indicated in deposition testimony, that may have actually been the case).

In the end, as others have already observed, the Board may have won the battle, but lost the war.  Although Sotheby’s Board claimed that its concern in fighting off activist shareholders was to keep Sotheby’s from wasting money it did not have, as well as protecting shareholders from coercive or unfair takeover tactics, the auction house in fact spent $5.7 million fighting Loeb and his compatriots, and will be reimbursing Loeb about $10 million for his troubles.  Moreover, the Board felt that it had to award three seats to Loeb and his nominees, most likely as a result, not only of early reports and preliminary votes indicating that Loeb would win, but in heeding Vice Chancellor Parsons’ apparent warning that the Board’s refusal to grant a waiver was a very close call.  On the other hand, Ruprecht has remained the Chairman of the Board, and Third Point has agreed to cap its holdings at 15 percent.

So what does this mean for the future of shareholder rights plans within and outside the art law domain? It means that shareholder rights plans are alive and well, particularly when well designed—even in the face of shareholder activism, rather than the threat of outright acquisitions.  But it also means that boards should be careful about their internal discussions of such activist funds, and should institute thoughtful consideration of what, exactly, they perceive the threat to the company could be (at least before breaking the bank on their legal and financial costs).  But for now, Loeb and his nominees are a part of the Board, and spring auctions are in full swing.

Sources and Explanations:

About the Author: Elizabeth R. Lash, Esq., is currently with Lash & Associates, LLC, where she works as a consultant on commodities consulting and regulatory issues.  She also provides IP and corporate governance advising in her capacity as a sole practitioner.

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

Case Review: Caterbetti v. Bloomgarden, et al

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By Chris Michaels, Esq.

J. Caterbetti, “Bodega judisprudencial” (2002)
J. Caterbetti, “Bodega judisprudencial” (2002)

On 28 March 2014, a complaint filed in the Supreme Court of New York, County of New York, alleges violations of the consignor/consignee relationship between an artist and the gallery that undertook to sell his works. Plaintiff, Jorge Caterbetti is a professional Argentinean artist whose work comments and critiques legal, social, and political issues. The complaint, filed on behalf of Caterbetti by Matthew C. Kesten and Daniel S. Kokhba of the Kantor, Davidoff, Mandelker, Twomey, Gallanty & Olenick, P.C. firm against the Belenky Gallery of New York and its affiliates, alleges that the defendants lost approximately 65 pieces of Caterbetti’s artwork by failing to exercise all due and reasonable care in the handling, display and storage of the artworks.

According to the complaint, Caterbetti entered into two consignment agreements with the defendants whereby defendants agreed to make reasonable efforts to sell Caterbetti’s works. Pursuant to both agreements, defendants also agreed to exercise all due and reasonable care in handling and storing his work, to return any unsold works to the artist, and the parties to the agreements agreed that the consigned works would not leave the gallery until a payment had been made to the artist. Between 1999 and 2003, Caterbetti consigned approximately 105 pieces of artwork to defendants for sale.

In April 2013, after selling only three of the consigned works, the defendants advised Caterbetti that the gallery was closing. At the same time, the artist learned that the defendants had moved his works out of the gallery and into a storage facility in Manhattan. In an effort to recover his artworks, Caterbetti discovered that approximately 65 of his pieces were missing and that approximately 35 pieces were located in homes of defendants’ relatives.

Among other causes of action, the complaint alleges that defendants’ actions violated the consignment agreements, defendants were negligent in caring for Caterbetti’s paintings, and they breached a fiduciary duty owed to the artist as defined by the recently amended Article 12.01 of the New York Arts and Cultural Affairs law. As indicated in the complaint, Caterbetti is seeking damages in an amount in excess of $500,000, which represents the value of the artwork plus interest accrued from the date he was made aware of the loss in April 2013. Additionally Caterbetti is seeking attorneys’ fees and costs and expenses, which will likely exceed $25,000.

Plaintiffs are represented by Matthew C. Kesten and Daniel S. Kokhba of the Kantor, Davidoff, Mandelker, Twomey, Gallanty & Olenick, P.C. firm. The Gallery’s response is due 20 days from the date of service of the complaint, which, if served on the date of the filing, would have been April 17, 2014. To date, no answer to the complaint has been filed. If the case gains traction, it will be the first example of evoking the recently amended NY Arts & Cult. Affairs law to protect artist’s interests.

Sources:

 

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 @CMichaels88.

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

The Race for a Tax Break: How Buyers Circumvent ‘Use Taxes’ on Art

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By Emma Kleiner

Francis Bacon, "Three Studies of Lucian Freud," (1969). © The Estate of Francis Bacon.
Francis Bacon, “Three Studies of Lucian Freud,” (1969). © The Estate of Francis Bacon.

When Three Studies of Lucian Freud (1969) by Francis Bacon sold last November in New York for $142.4 million, the art world wondered about the identity of the unnamed buyer and the location of the triptych’s new home. Subsequently, the identity of the triptych’s anonymous buyer was revealed: the buyer was Elaine Wynn, who divorced Las Vegas casino owner Stephen A. Wynn in 2010. Although Ms. Wynn is a resident of Nevada, in December 2013, Three Studies of Lucian Freud made its surprising post-auction debut at the Portland Art Museum in Oregon. While the decision to anonymously lend the painting to the Museum may appear surprising at first, the Portland Art Museum regularly attracts recently auctioned items to display in its galleries. The decision for collectors to regularly lend to the Portland Art Museum originates from a reason more basic than the Museum’s location, collection, or galleries – it is based on a tax break.

Although Ms. Wynn has not released the tax plan for Three Studies of Lucian Freud, her tactical decision to show the triptych in Oregon instead of shipping it to her Las Vegas home from Christie’s in New York likely helped her to avoid use taxes in her home state, which, in her case, may have reached $11 million. Use taxes incur when an individual sends home an out-of-state purchase. By shipping recently purchased artwork out of state immediately, the collector avoids the state’s sales tax, but use taxes are in place to make up for that loss. Still, a collector can avoid their home state’s use tax by utilizing a little known loophole. Usually, artwork is subject to a use tax in the state where it arrives after it is shipped from its purchase location, but five states—Alaska, Delaware, Montana, New Hampshire, and Oregon—do not have a use tax. In contrast, California, which established a use tax in 1935, has a use tax rate of 8.75% and Nevada, which established a use tax in 1955, has a use tax rate of 6.85%.  By the time the artwork arrives in the owner’s home state, it has already been “used” in another state, and thus no use taxes are owed. This clever tactic allows art buyers, who sometimes pay tens of millions for artwork, to relocate the artwork to their private residence tax-free.

Similar to the Portland Art Museum, museums in tax-free use states often encourage collectors to loan recently purchased artwork before it disappears into private homes. For example, the Jordan Schnitzer Museum of Art at the University of Oregon in Eugene, Oregon, has experienced such an influx of recently auctioned artwork that they established a program called Masterworks on Loan, which “invites private collectors to share their masterworks with our constituents.” With a nod to the favorable tax breaks provided by Oregon, the Museum’s website proclaims, “Some lenders may receive tax benefits for participating in our Masterworks on Loan program and should consult a tax advisor to learn more.”

Francis Bacon, THREE STUDIES FOR A PORTRAIT OF JOHN EDWARDS (1984)
Francis Bacon, “Three Studies for a Portrait of John Edwards” (1984)

While the decision for an art buyer to exhibit their purchase at a small museum in a tax-free use state may at first seem like an innocuous opportunity for the expansion of arts education, there is a tension between that idea and the harm to the buyer’s home state that usually receives the revenues from use taxes. Upcoming auctions will provide the art world with the opportunity to see if this tax loophole becomes more prevalent. If it does become popular, individual states may be motivated to change their tax code to make up for the loss that is incurred when art is first displayed in a tax-free use state. Later this month, Christie’s in London will auction another triptych by Francis Bacon, entitled Three Studies for a Portrait of John Edwards (1984), estimated sales value between $4.4 and 5.8 million If purchased by an American collector, it is easy to imagine that this work, too, may head to an exhibit in Oregon shortly thereafter.

Sources:

About the Author: Emma Kleiner is a student at Stanford Law School.

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

The Shifting Sands of Art Authentication: As Calder Foundation finds itself in court again who will have the last word regarding authentication?

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By Irina Tarsis, Esq., Center for Art Law

Nils Elias Christoffer von Dardel, "Columbus’ egg" (1924)
Nils Elias Christoffer von Dardel, “Columbus’ egg” (1924)

On 3 March 2014, a well-intentioned Bill to amend the New York Arts and Cultural Affairs Law was introduced in the New York State Assembly. If voted in, the “act to amend the arts and cultural affairs law, in relation to opinions concerning authenticity, attribution and authorship of works of fine art the proposed amendments arguably would protect art authenticators from frivolous or malicious suits brought by art owners.”  For the purposes of the Bill, “art authenticator” is someone who provides authentication of artwork “through documentation, stylistic inquiry, and/or scientific verification.” As proposed, it offers enhanced protection to individuals and entities “recognized in the visual arts community as having expertise regarding the artist” in respect to whose work the authenticator is rendering an opinion. The Bill will prevent collectors from using the legal system to strong-arm art experts into giving favorable opinions about authorship, attribution or authentication. In fact, the Bill may be a response to the increased number of suits brought against art foundations and against art historians as well as to the recent trend of the US- based art authentication committees to disband. (See for example The Keith Haring Foundation to Disband its Authentication Committee and Authentication Committees Disband: Who’s Next?).

Ultimately, it does seem unfair to penalize art historians for withholding favorable opinions in cases where they challenge attribution or deem works of art not genuine. The Bill is intended to allow authenticators and art historians, who have increasingly become reluctant to provide professional opinions about authentication, to have open scholarly discussions debating if suspect or unconfirmed objects deserve to be included in artist catalogues raisonnés and their known oeuvres.

Art authenticators provide an important service not only to the humanities but also to the art market. Indeed, the art market has long relied on art historians and authentication committees to flag suspect art and pass judgment about authenticity. However, neither authenticators nor art historians are able to access the insurance they require to protect them for providing their professional opinion. Protection readily available for malpractice and erroneous professional activity appears to be reserved for professions involved in medicine or law. As a result from the lack of protection, the threat of legal action has driven some art authenticators out of the business.

Authenticators in the United States seem to have been more affected by legal actions than the authenticators in the European authentication markets, where, direct descendants of artists are entitled to issue certificates of authenticity or bring about destruction of works deemed inauthentic. (See for example, Authenticating Picasso and Burning Fake Chagalls). To the detriment of the art community, it has become a common practice for authentication committees in the United States to deny providing any reasoning for determining when certain works of art are deemed to be fake or dubious. This is premised on the argument that if authenticators reveal what red flags triggered their suspicions, the sly art forgeries would simply incorporate mechanism and compensate for the deficiencies in the subsequent forgery, thus making the work of art experts harder still. Incidentally, just this week the man responsible for selling fakes to the Knoedler Gallery was indicted in Spain and was quoted as saying that art works smelling of tea leaves should raise alarm bells as tea bags are frequently used by art forgers. Letting forgers know what to look for, makes the forgery market easily accessible. (For more, read Indictment Details How to Forge a Masterpiece.)

Alas, just as “to err is human” so is making false statements for various disreputable reasons. Even artists themselves have been known to refuse providing authenticity of their own works just to spite the legal owner of a genuine artwork. (See for example Valentina Favero, “Art Law and Authenticity: a critical analysis of some issues from Defendants v. Vandergucht”).

Unlike forensic science, authentication based on connoisseurship is subjective, and it may change over time based on subsequent studies and conclusions. While auction houses offer attribution warranty guaranteeing that within a set period of time after sale, a transaction may be rescinded if attribution of the work definitively changes, art collectors are not 100% protected from the adverse economic effects of attribution revisions that an authentication committee may issue vis-à-vis an object. This occurred in the famous “Double Denied” case involving a silkscreen attributed to Andy Warhol. The Warhol Authentication Committee rejected authenticity twice, even though the silkscreen had been authenticated prior to those 2002 decisions. See Simon-Whelan v. The Andy Warhol Found. for the Visual Arts, No. 07 Civ. 6423 (LTS) (S.D.N.Y. May 26, 2009).

The Bill is very likely to pass in New York in 2014, given the nearly unanimous support it has garnered among various Bar Associations and arts organizations, including appraisers’ and art historians’ organizations. Just in time, perhaps, the recently filed case brought by Gerard Cramer against the Calder Foundation brings a challenge on the very ground that would require heightened standards or pleading under the proposed law.

In 1948 Alexander Calder (1898-1976) an internationally renowned and universally beloved master of sculptures, sold one of his mobiles to Gerard Cramer, a gallery owner in Switzerland. Subsequently, this work entitled “Eight Black Leaves,” appeared in various catalogues, its authenticity remaining unchallenged. According to the complaint, Cramer and Calder remained on amicable terms and corresponded for years after the sale.

The Calder Foundation is a New York based nonprofit, which, according to its mission, catalogues Calder’s works and makes them available to the public for inspection, research and educational purposes. There is a list of Calder’s works available on the Foundation’s website. While the Foundation never completed a catalogue of Calder’s works, it has established a practice of issuing inventory numbers to the works it rules to be authentic.

Following Calder’s death, his sculptures remained popular and desirable. In 2012, Cramer heirs contacted Christie’s auction house indicating they wanted to consign “Eight Black Leaves” for sale. The auction house apparently agreed to accept the work on consignment subject to the issuance of an inventory number by the Calder Foundation, as is the common practice in the art market regarding Calder works.

According to the complaint “it is a well-known fact in the marketplace for Calder works, and works without an inventory number issued by the Calder Foundation cannot be sold as authentic Calder work.” Instead of giving the work a status of a complete work, the Foundation labeled it a fragment. The sales have been blocked because the Foundation alleges that “Eight Black Leaves” are a segment of a larger artwork.

On 28 February 2014, Patrick Cramer, co-administrator of the Estate of Gerard Cramer, brought a suit against the Calder Foundation, as well as individual Calder descendants, alleging that defendants were blocking a sale of their mobile. The wrongful act alleged in the complaint is described as “arbitrary determination of authenticity.” The Complaint states that the Foundation has “compromised its scholarly integrity” by mislabeling “Eight Black Leaves” as a fragment and this act is only one in a bigger scheme to control the market for Calder works. This and other decisions made by the Calder Foundation have allegedly stemmed from conflict of interest and self-dealing, because the Foundation has its own 22,000-item Calder collection, which it deals.

The Plaintiff accused the Foundation of product disparagement, anti-trust violations and other wrongdoings. (See a related case Thome v. Alexander & Louisa Calder Found., No. 600823/07 (N.Y. Sup. Ct. 2008); aff’d 70 A.D.3d 88 (N.Y. App. Div. 2009)).

Why are there more and more cases being filed against authenticators and by authenticators, such as the recently dismissed Calder Estate claim and the pending case filed by the Basquiat sisters? (For details, see Calder Estate Fraud Claim Dismissed or Basquiat sightings, or Case Review: Heriveaux v. Christies, Inc.) The whopping prices that certain twentieth century art giants are netting at auction have attracted a new breed of art buyers – those who purchase art for the purpose of investment. These investors are interested in safeguarding their investments with more just than uncertain scholarly opinion. If auction houses and galleries refuse to sell, and collectors hesitate to buy art works attributed to the blockbuster names unless there is an authentication certificate included in each transaction, an opinion has to be ventured and a certificate signed. This exercise, in theory should be unbiased and free from threat of liability.

As a justification for the new Bill, its drafters have noted that:

 “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. This bill would clarify the role of art authenticators to ensure that those who practice their profession, in good faith, would be afforded protections under the law to ensure that only valid, verifiable claims against authenticators are allowed to proceed in civil court.”

The real threat of litigation that may result in case authentication is challenged or revoked necessitates a scapegoat; a scapegoat that the new Bill promises to prevent art historians from becoming. Unfortunately, the possibility of malfeasance by economically motivated authentication entities remains intact. While the proposed Bill tries to address possible conflicts of interest facing authenticators by indicating that entities with a financial interest in the transaction would not receive enhanced protection from the new law, this provision would only ensure that authentication committee members would not be protected if they provide authentication to the works they own and/or are selling.

However, it is important to note that there is a difference between the ‘financial interest’ detected in a specific work being authenticated in order to benefit from the sale and a ‘financial interest’ in other works of the same artist that may explain false denouncements of other works to make them unsellable, or remove competition. There is a reason why even the IRS recognized that bulk discount is merited on inheritance tax owed by heirs of a given artist because if all of the works in the studio were to be sold at once, the uptake on the supply side, would flood the market and result in a reduced demand for the works. Thus, one can reasonably argue that a foundation that has an authentication committee while capable of selling artworks by the same artist on the open market does have a financial interest in controlling the size of the pool, and thus the market and is more likely to find something wrong with the work submitted from the outside.

Cramer is represented by attorneys from Eaton & Van Winkle LLP, Michael A. Lacher and Adam J. Rader. An answer or a motion from the Foundation in response to the complaint is expected by May 8, 2014.

In conclusion: Caveat emptor! Again and always, because the more things change, the more they stay the same.

 

Select Sources:

  1. Complaint, Cramer v. Calder Foundation, et al, (S.D.N.Y. Feb. 28, 2014);
  2. Valentina Favero, “Art Law and Authenticity: a critical analysis of some issues from Defendants v. Vanderguchtdiscussing Arnold Herstand & Co. v. Gallery: Gertrude Stein, Inc, 211 A.D.2d 77 (1995), available here.
  3. Simon-Whelan v. The Andy Warhol Found. for the Visual Arts, No. 07 Civ. 6423 (LTS) (S.D.N.Y. May 26, 2009)
  4. Thome v. Alexander & Louisa Calder Found., No. 600823/07 (N.Y. Sup. Ct. 2008); aff’d 70 A.D.3d 88 (N.Y. App. Div. 2009)

 

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

 

Restrictions on Ivory in the United States, U.S. Fish and Wildlife Service Director’s Order No. 210

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By Chris Michaels, Esq.

Piano Keys, by Texasgurl
Piano Keys, by Texasgurl

The U.S. Fish and Wildlife Service recently enacted an order seeking to restrict the market for ivory in the United States; an action that may have unintended consequences. For example, in 2012, The New York Times ran an article noting that the market for upright pianos has plummeted in recent years. Formerly considered a “middle-class must-have” the cost of upkeep, coupled with the low cost of new electronic keyboards and foreign-manufactured uprights, caused many owners to discard their older upright pianos. Some of these relics of the past were outfitted with ivory – a material traditionally used to construct the keys. The resale of such ivory may now be subject to the newly enacted order.

While restrictions against the use and trade of ivory have been in place for years, there is an increased demand for ivory in emerging markets like China. In response to this trend, on 25 February 2014 the U.S. Fish and Wildlife Service (the “Service”), through Director Daniel M. Ashe, enacted Director’s Order No 210: Administrative Actions to Strengthen U.S. Trade Controls for Elephant Ivory, Rhinoceros Horn, and Parts and Products of Other Species Listed Under the Endangered Species Act. The Order was enacted to protect endangered species, namely African elephants, by regulating the ivory market in the United States. Specifically, it calls for strict enforcement of existing restrictions on the import, export, and interstate sale of ivory.

At first blush, the Service’s goal of protecting endangered animals through strict regulation of the market seems relatively straightforward. What is less straightforward, however, is the effect the enforcement of the restrictions will have on the sale of ubiquitous objects such as old musical instruments, chess sets, handguns, and other items that contain ivory. Until the new Order was enacted, these types of items could be sold within the United States with little concern for intervention by authorities. With the new Order in place it will become much more difficult to sell these items.

Pursuant to the Order, the interstate sale of ivory is strictly prohibited unless accompanied by an Endangered Species Act (“ESA”) permit. Transport is nonetheless allowed if the item can be qualified as “antique.” To comply with the “antique” exception, the importer, exporter, or seller must show that the object meets the following qualifications. The item:

  • Must be 100 years or older;
  • Must be composed in whole or in part of an ESA-listed species (of which there are approximately 2,140 endangered or threatened species under the ESA);
  • Must not have been repaired or modified with any such species after December 27, 1973 (the ESA was signed in to law by President Nixon on December 28, 1973); and
  • Is being or was imported through an endangered species “antique port.”

The specific “antique ports” include the following thirteen locations: Boston (MA); New York (NY) Baltimore (MD); Philadelphia (PA); Miami, (FL); San Juan, (PR); New Orleans, (LA); Houston, (TX); Los Angeles, (CA); San Francisco, (CA); Anchorage, (AK); Honolulu, (HI); and Chicago, (IL).

The ability to prove the above-mentioned criteria prior to a sale are extremely slim since the majority of antique ivory items lack provenance records.

In addition to restricting sales, the Order restricts the sale of musical instruments using ivory and also makes them difficult to import into the United States. The Order sets forth the following criteria that must be established in order to legally import the item:

  • It must have been legally acquired before February 26, 1976;
  • It must not have been subsequently transferred from one person to another person in the pursuit of financial gain or profit since February 26, 1976;
  • The importer must qualify for a Convention on International Trade in Endangered Species of Wild Fauna and Flora (“CITES”) musical instrument certificate; and
  • The musical instrument containing elephant ivory must be accompanied by a valid CITES musical instrument certificate or an equivalent CITES document that meets the requirements of CITES Resolution Conf. 16.8.

Similar restrictions are now in place for objects containing ivory imported for traveling exhibition purposes. In other words, museums and foundations seeking to exhibit collections with ivory will likely find themselves struggling to meet the requirements set out in the Order. In fact, they are more likely to opt out of exhibiting objects containing or made of ivory to avoid incurring additional costs and risks associated with the exhibition.

The sentiment behind the Order is certainly praiseworthy, but it remains to be seen whether the overall chilling effect on the market for ivory in the United States will actually curb the poaching of African elephants. It surely will not have a chilling effect on continued demolition of antique pianos; however, art loans are another matter altogether.

Sources:

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 @CMichaels88.

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

Getty Seeks to Quiet Title of the Ansouis Diptych: Back to Legal Technicalities or End of an Era?

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By Emma Kleiner

"The Stigmatization of St. Francis, and Angel Crowning Saints Cecilia and Valerian" (The Getty Museum)
“The Stigmatization of St. Francis, and Angel Crowning Saints Cecilia and Valerian” (The Getty Museum)

Employing a popular yet controversial legal tactic, in September 2013 the J. Paul Getty Museum (Getty), represented by Munger, Tolles & Olson LLP, sued in federal court in California seeking an order to quiet title to The Stigmatization of Saint Francis and The Crowning of Saints Cecilia and Valerian. Typically, this type of action is instituted to assert a party’s title to a piece of property, thus preventing claims by others to the property. If successful, any future legal action against the Getty by Geraud Marie de Sabran-Ponteves, the heir to the original owner of the work, would be barred.

In summer 2012, the counsel for Geraud Marie de Sabran-Ponteves, a French citizen, informed the Getty that its client was claiming to be the sole owner. Defendant Geraud Marie de Sabran-Ponteves alleged the artwork belongs to him as a component of a “long-running inheritance dispute”— a claim that the Getty asserts is erroneous. This lawsuit may be a test case for resuscitating technical defenses museums use seeking to keep works with disputed histories within their collections. Legal arguments like these are based on technicalities rather than the merits of a case, and the use of such arguments has a divisive history in the context of art title disputes.

For three decades, the Getty has prized The Stigmatization of Saint Francis and The Crowning of Saints Cecilia and Valerian, also known as the Ansouis Diptych, for being “a beautiful and well-preserved and devotional object” and “[u]nique in subject.”The Ansouis Diptych, currently valued at approximately $2.7 million, has been alternately attributed to a late fourteenth  century Avignon painter and to an early fourteenth  century Naples painter. The Getty purchased this work in 1986 from the Wildenstein & Company gallery, which in turn had purchased it five years earlier from the Sabran-Ponteves family. The Sabran-Ponteves family owned the Ansouis Diptych for generations. In fact, the work is traditionally interpreted as featuring Sabran-Ponteves’ ancestors in one of the panels. Geraud Marie de Sabran-Ponteves asserts that the sale of the artwork to the Wildenstein & Company gallery was unauthorized because the seller, his brother Charles Elzéar, offered it to the gallery without acquiring the consent of the other four siblings.

The Getty, however, is seeking an order to quiet title based on its purchase of the work in good faith and its display of the artwork prior to any legal claims arising. Furthermore, the Getty asserts that Geraud Marie de Sabran-Ponteves’ claims are barred by California’s statute of limitations. According to the Getty, Sabran-Ponteves was aware of the artwork’s location as early as 1987; he even contacted the Getty staff in 1999 about the artwork for the purpose of valuing his family’s estate. To sue in California within the statute of limitations, Sabran-Ponteves needed to bring suit within three to six years of locating the artwork, which he failed to do. In the alternative, the Getty asserts that it owns the artwork by adverse possession.

The tendency for a museum to seek an order to quiet title to an artwork, and the success of doing so in terms of outcome and public opinion, has waxed and waned over the last decade. It is informative to look at how museums have approached similar disputes regarding Holocaust-era assets because the legal techniques discussed above are frequently utilized in such lawsuits. For instance, in 2006 the Toledo Museum of Art filed suit to quiet title of Street Scene in Tahiti by Gaugin. Similarly, in 2006 the Detroit Institute of Art filed suit to quiet title of The Diggers by Van Gogh. In 2008 the Museum of Modern Art and the Solomon R. Guggenheim Foundation filed suit to affirm their respective ownership of Boy Leading a Horse by Picasso and Le Moulin de la Galette by Picasso on the basis that the original owners voluntarily sold the artworks. In 2009 the Museum of Fine Arts, Boston invoked the statute of limitations to affirm ownership of Two Nudes (Lovers) by Kokoschka, and the matter was resolved without reaching the merits of the case. Finally, in 2011, the Museum of Modern Art used a similar argument to affirm ownership of three works by Grosz. The tactical decision to use actions to quiet title and invoke statutes of limitations is readily seen through these examples, as in the dispute with Sabran-Ponteves.

Many museums, including those mentioned above, have received harsh criticism for opting for preemptive legal measures to settle title disputes, instead of conducting provenance research prior to the acquisition of the artwork or working with the individuals claiming rightful ownership of artwork. For example, Charles Goldstein and Yael Weitz, of Herrick, Feinstein LLP (NYC), write: “[M]useums, as institutions that function in a climate of ethical responsibilities, owe a duty to the public to maintain the integrity of their institutions,” which includes allowing for cases involving artworks with disputed histories to be litigated on the merits. Still, other scholars and practitioners argue that actions seeking to quiet title of artwork or actions based upon statutes of limitations are appropriate. For example, not all claims made by heirs of the former owners of artwork are meritorious, and such ought to be dismissed at an early stage of the dispute both to conserve museum resources and reduce the court docket. Furthermore, museums have the obligation to “take all reasonable steps to protect the assets they hold in trust,” including bringing suit to quiet title or invoking statutes of limitations. While scholars often times focus the discussion around Holocaust-era asset lawsuits, this debate readily reaches all situations in which a museum attempts to argue the technicalities rather than the merits of a case.

The controversy surrounding filing suit to quiet title and invoking statutes of limitations continues to influence the manner in which a museum chooses to claim ownership of contested works. In this case, the Getty already holds a controversial reputation due to its past legal problems and public repatriation battles. Now, the Getty took a public relations gamble in attempting to utilize the legal system to bar Sabran-Ponteves from bringing suit against it. Thus the anticipated resolution of this lawsuit by Judge Gary Feess may shed light on whether these legal tactics will continue to be favored or disfavored by museums.

Sources:

About the Author: Emma Kleiner is a student at Stanford Law School.

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

Gurlitt Saga Continues: U-Turn or Rotary?

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By Steffanie E. Keim, Esq. 

Children should not be punished for the mistakes of their parents. Sometimes it gets difficult to determine where mistakes of the parents end and new mistakes, those by their children, begin. The international art community is continuing to look at the Gurlitt saga with great interest, not the least because of the mistakes that have been made in handling the art collection that Cornelius Gurlitt inherited from his father Hildebrand Gurlitt, the German art historian and art dealer who traded in “degenerate” and other art during the Nazi era, but also because of the glacial pace the entire process by the authorities has taken. More than 1,000 works of art were seized in the Munich apartment of art collector Cornelius Gurlitt in 2012 and the ongoing controversy surrounding the case has been widely publicized and reported on since November 2013. (See our original report; as well as an update WhoisGurlitt.info).

Now, there seems to be some new movement in the controversy regarding Gurlitt’s art collection. The German television news service Tageschau reported that Christoph Edel, the court appointed custodian of Gurlitt announced that his client plans to return all works of art which have been stolen or looted from Jewish owners. Concerned observers, including Nicholas O’Donnelle, a litigator and editor of the Art Law Report have already asked who will draw the line between what constitutes “stolen” and “looted” works and those that were just taken or sold under duress.

An agreement in the ongoing negotiations with the descendants of the Jewish art dealer Paul Rosenberg regarding the return of the portrait “Sitzende Frau” (Sitting Women) by Henri Matisse, which is valued in excess of $10 million, and is in custody of the Office of the Public Prosecutor in Augsburg, is expected shortly.  This work of art was looted by the Nazis and was part of the art collection of Herman Goering before it eventually came into possession of the Gurlitt family.  Rosenberg himself and his heirs have pursued the restitution of Rosenberg’s art collection since 1945 and been able to reclaim and re-purchase scattered pieces from his pre-war collection.

According to Edel, further restitution can be expected in the coming weeks as Gurlitt has apparently expressed that he has no interest in retaining art works which have been looted and has given the custodian full discretion regarding the return of works which are verifiably looted. Dr. Hannes Hartung, who had been in charge of negotiating possible restitutions was relieved from his mandate on 26 March 2014, with immediate effect (as reported by the Wall Street Journal on 28 March 2014 by Edel) and future claims are to be are directed to Gurlitt’s court appointed custodian Edel.

In connection herewith it has also been announced, that the collection found at Gurlitt’s Salzburg house, which was initially estimated to contain sixty works is now estimated to contain 238 nineteenth century and classical modernity works, including oil paintings, drawings and sculptures by Monet, Renoir, Manet, Gauguin, Toulouse- Lautrec, Liebermann and Cézanne as well as long missing painting by Jean Desire Gustave Courbet “Portrait of Monsieur Jean Journet” (1850). The art trove has been removed from Gurlitt’s Salzburg house at Carl-Storch-Strasse 9, which was listed as his main residence with the registry office and were he resided for many years, and where he and his art work went as unnoticed by his Salzburg neighbors and galleries as he has been in Munich, where he lives in an apartment, which he shared with his mother until her death.  The Salzburg home has been uninhabited and neglected for years, as were the paintings, drawings and sculptures hidden inside.  The art works, some of which are in poor condition have been removed from the premises for safekeeping and cleaning and are currently stored at an undisclosed location in Austria.

Gurlitt art works stored in secret location (still from the news reel).
Gurlitt art works stored in secret location (still from the news reel).

Gurlitt’s statements and actions continue to be ambiguous and even contradictory.  While he has given a group of journalist access to the art trove and allowed for filming and photographing of some works he continues to refuse to release a list of the collection found in his Salzburg residence.  Although he has vowed to return stolen or looted art works, Gurlitt currently insists on retaining experts himself to research the provenance of the works discovered in Salzburg and promises to publish the findings.  However, the identity of the experts, the timing of their retention, and when the results of such provenance research would be released to the public remains unclear and would be entirely in Gurlitt’s discretion.

Rüdiger Mahlo, the representative of The Jewish Claims Conference in Germany and other Jewish organizations have requested that independent researchers determine the provenance of the works and have insisted that the art trove be made public so Holocaust survivors or their heirs can file claims.

The reactions to and assessments of Gurlitt’s motives in agreeing to return stolen and looted artworks to the heirs of the rightful owners are polarized, as some believe that it might be an expression of goodwill while others believe he is yielding to public pressure or that he may not be as forthcoming as he claims to be since by controlling the process he may very well be controlling the outcome.
It remains to be seen if actual progress is being made in this case or whether it is merely the debate that has shifted from Gurlitt questioning whether he should return any works of art to his pledge to return works of art he considers stolen or looted.  As the story continues to unfold, the chain of events demonstrate that predicting Gurlitt’s next steps remains as elusive and unknown as the man himself and his collection have been for the past decades. For now the collection found and seized in Gurlitt’s Munich apartment in March 2012 demonstrate the contrariness of Gurlitt – while part of the collection has been digitized and posted on the German website lostart.de, it is being juxtaposed by charges filed by Gurlitt claiming the illegal seizure of this collection.

Senior Public Prosecutor in Augsburg, Reinhard Nemetz has made clear however, that while cooperation and reparation by the suspect are being taken into consideration, the investigation will continue and that no plea bargain will be accepted in exchange for restitution of art works.

Postscript: The public rediscovery of the Gurlitt collection raised many questions about how German civil and criminal laws deal with restitution matters. Further, the ongoing search for thousands of missing works has even prompted a new wave of provenance research investigations. Sadly, governments continue to make mistakes when faced with and concerning restitution issues. The Bavarian Department of Justice has admitted to making mistakes in response to the tedious piecemeal handling of the Gurlitt case. Michael Grauel, the Head of the Cultural Committee of the Bavarian Parliament declared that in hindsight things could have been handled differently and better.  While the remarks were introspective, the complexity of the case and the fact that legal authorities are not provenance experts was also noted.  According to Grauel a simultaneous search of the two Gurlitt’s residences, one in Munich, Germany, and the other in Salzburg, Austria, was planned at the time the initial search in Munich took place.  However, the prosecutor’s office in Salzburg denied the German petition for international administrative assistance in the search claiming at the time they received the request that the minimum amount of 100,000 Euros required to authorize such international administrative assistance had not been established.

In a related decision, the Bavarian Higher Administrative Court denied the request for temporary relief from a journalist who had sought information about the Gurlitt collection. According to the order of March 27th, 2014 [Bayerischer Verwaltungsgerichtshof, Beschluss vom 27.03.2014 - 7 CE 14.253], the prosecution in the Gurlitt case will not be “required to hand over a full list of the artworks as well as their dimensions.” since, the public interest does not sufficiently outweigh the confidentiality interest of Gurlitt in his collection and thus does not merit a grant of the temporary injunction. While to-date, less than half of the Gurlitt collection has been digitized and made available to the public via lostart.de website according to the court the journalist does not suffer unreasonable harm by awaiting a decision in the main proceedings. While this decision certainly is frustrating, since so long as the entire collection is not listed and reviewed by provenance researchers, it will be hard to guarantee that all artworks with questionable provenance will have an opportunity to return to their rightful owners, it is a very fact specific decision and faces the heightened pleading burdens of summary proceedings. This decision however does not preclude a different outcome in the main proceedings or even in a request for temporary relief by a different plaintiff with a legitimate interest (possibly the owner of an art work already listed on the lostart.de website who may have further claims regarding art works not yet listed.)

Sources:

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.

Basquiat sightings, or Case Review: Heriveaux v. Christies, Inc.

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By Chris Michaels, Esq.

Born in Brooklyn, NY in 1960, Jean-Michel Basquiat was a contemporary American artist, who started his career as a graffiti artist in the mid-1970s working in and around the Lower East Side of Manhattan. He gained popularity in the art world in the early 80s when his first solo art show opened in 1981. It was also in 1981 that Artforum magazine published a feature on Basquiat, effectively bringing his work into the mainstream. Basquiat’s art received widespread critical acclaim and in 1985 The New York Times Magazine featured the artist on their cover. Three years later, Basquiat died of a heroin overdose in 1988 at the age of 27. His popularity continued and grew after his death; today Basquiat’s work continues to bring in huge sums at auction. For example, in May of 2013 his painting, Dustheads, sold for $48.8 million at auction.

Basquiat’s “Dustheads,” which recently sold at auction on May 15, 2013 for $48.8 million:
Basquiat’s “Dustheads,” which recently sold at auction on May 15, 2013 for $48.8 million.

After the artist’s death, his estate established a committee to review and determine authenticity of works thought to be Basquiat. The authentication work was directed by the artist’s father, Gerard Basquiat, with assistance from a former curator of American Art at the Whitney Museum. As of September 2012, the authentication committee disbanded. (Read our report on the phenomenon of closing authentication committees here.)

Basquiat’s estate is currently administered by his sisters, Jeanine Basquiat Heriveaux and Lisane Basquiat, who in their roles as administrators are currently suing the Internal Revenue Service, alleging that their brother’s estate was overvalued. (Read: Untitled but Taxable.) The sisters took over the suit, which was originally filed by their father Gerard, after Gerard died. The origins of the IRS suit began when Sotheby’s originally valued Basquiat’s mother’s half of the estate at $36 million. Death taxes were paid by Gerard using the Sotheby’s valuation of the estate. The IRS, however, later valued the estate at $138 million, significantly increasing the amount of death taxes owed by the estate, and imposing nearly $2 million in penalties. The IRS suit is on the docket for a hearing by the United States Tax Court in April of 2014.

With April only weeks away, on 4 March 2014, Basquiat’s sisters filed a claim against the auction house Christie’s, Inc. (“Christie’s”), alleging it was attempting to sell inauthentic Basquiat items. The Complaint concerns publication Christie’s 148-page sales catalogue entitled “Jean-Michel Basquiat: Works From The Collection of Alexis Adler.” The catalogue was published in mid-February 2014 and was created to publicize the auction house’s March 2014 sale of approximately 50 items that Christie’s attributed to/listed as created by Basquiat.

UNTITLED (FLAG), one of the works attributed to Basquiat which was to be sold by Christie's before the case.
UNTITLED (FLAG), one of the works attributed to Basquiat which was to be sold by Christie’s before the case.

The source of the collection featured in the catalogue purportedly comes from Alexis Adler, a woman with whom Basquiat had a relationship and lived with for time between 1979 and 1980 in New York. The collection that Christie’s accepted on consignment for sale was allegedly left behind by Basquiat in the apartment he shared with Adler.

Prior to the catalogue being published, in 2007, Adler attempted to have seven items in her possession authenticated by the Estate’s Authentication Committee. At the time, six out of the seven items were, in fact, determined to be authentic Basquiat works. Nevertheless, according to the Complaint, at no time did Adler or Christie’s attempt to authenticate the rest of the items in her collection.

If, by way of example, Christie’s had in fact submitted the collection to the Estate for authentication and it declined to authenticate some of the items, a proposed New York State bill, if passed, would afford the Estate greater protection if Christie’s then decided to sue for improper/negligent denial of authenticity. Proposed New York State legislation, §13.04 of the New York Arts and Cultural Affairs Law, outlines specific protection for people or entities that qualify and are sued as “authenticators.” Under the bill, an “authenticator” is defined in two ways: 1) “a person or entity recognized in the visual arts community has having expertise on the artist or work of fine art with respect to whom such person or entity renders an opinion in good faith as to the authenticity, attribution or authorship of a work of fine art”; or 2) “a person or entity recognized in the visual arts community or scientific community as having expertise in uncovering facts that serve as a direct basis, in whole or in part, for an opinion as to the authenticity, attribution or authorship of a work of fine art.”

Notably, under the proposed bill, an authenticator shall not include “a person or entity that has a financial interest in the work of fine art for which such opinion is rendered. . . .” The proposed bill does, however, allow for an authenticator to be compensated for their efforts relating to their authenticating a work.

Untitled (We'll Get You Next Time), work attributed to Basquiat, listed in the Christie's catalog.
Untitled (We’ll Get You Next Time), work attributed to Basquiat, listed in the Christie’s catalogue.

Under the proposed bill, if a suit is brought against an authenticator that relates to the authenticator’s opinion concerning a work of art, the claimant must: 1) specify with particularity in the complaint facts sufficient to support each element of the claim or claims asserted; and 2) prove the elements of the claim or claims by clear and convincing evidence. As further protection for authenticators in civil claims, if the authenticator prevails in the action, he, she, or it may recover reasonable attorney’s fees, costs and expenses.

When the catalogue for the online auction was published, however, a notice on the last page was included which read, “All artwork by Jean-Michel Basquiat: © 2014 the Estate of Jean-Michel Basquiat/ADAGP, Paris/ARS, New York.”

In the Complaint, Basquiat’s sisters allege that Christie’s included the above-mentioned notice to deceive potential bidders into thinking that all of the items for sale were authenticated by the committee. In addition, plaintiffs/or their first names allege that Christie’s included the notice to increase the auction prices in order to maximize its revenue from the sale. At the time, the Complaint noted that allowing the sale to continue would serve to damage the Basquiat Estate by putting into the marketplace items of questionable authenticity, which will in turn decrease the value of works actually created by Basquiat.

The plaintiffs in this case are seeking, among other things, a minimum of $1 million in damages and injunctive relief restraining Christie’s from using the Estate’s name in any credits without the Estate’s prior written consent. Plaintiffs’ claims for relief include, but are not limited to, false endorsement, false advertising, deceptive trade practices, and unfair competition.

Plaintiffs are represented by Cinque & Cinque, P.C. law firm in New York. Christie’s has yet to enter its appearance. However, on March 9, 2014, Christie’s postponed the Basquiat auction pending the outcome of this case. No amended complaint was filed as of March 24, 2014. An Initial Pre-Trial Conference is scheduled for May 2, 2014.

Sources: 

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 @CMichaels88.

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