Common European Heritage: The French and Dutch Government Joint Acquisition of Two Rembrandt Portraits

*By Ana T. Iacob

“Madame le ministre, Ladies and gentlemen, We hébben ze! Nous les avons! We have got them!’’

— Speech by Dutch Minister for Education, Culture and Science Jet Bussemaker at the official signing ceremony for the Rembrandt portrait purchase

On February 1, 2016, France and the Netherlands jointly acquired two works by Rembrandt van Rijn, the wedding portraits of Maerten Soolmans and his wife, Oopjen Coppit. This joint acquisition, otherwise known as the Rembrandt Treaty, was accomplished through an intergovernmental agreement signed by the French and Dutch Ministers of Culture, becoming thus one of the most expensive sales of Old Master paintings in history. Christie’s Private Sales channel facilitated the acquisition, which totaled €160 million for both portraits.

Screen Shot 2016-07-06 at 4.12.43 PM

Rembrandt van Rijn, Portraits of Maerten Soolmans and Oopjen Coppit (1634)

History of the Portraits

The two oil paintings, completed in 1634, represent the only full-length portraits painted by Rembrandt. In 1878, the portraits moved from the Van Loon collection in the Netherlands to France when they were purchased for the Rothschild Collection. The impending move to France spurred the  Dutch government to attempt to acquire the paintings for the first time in order to prevent them from leaving the Netherlands. However, that did not occur due to the exorbitant price of the works. Accordingly, the portraits remained in the Rothschild Collection in France until 2013, when the Rothschild family announced its intent to sell the pair.

Immediately, the Dutch government saw the opportunity to have both paintings return to their nation of origin: the Netherlands. In an interview with BNR Nieuwsradio, the Dutch Minister for Education, Culture and Science Jet Bussemaker said it would be “very undesirable” if the works were sold to “a rich oil state” instead of returning to the Netherlands. The Dutch parliament feared that if the Netherlands did not secure the works, the two portraits would remain outside their country of origin indefinitely.  

Sale of the Portraits

Both France and the Netherlands sought to individually purchase the portraits. According to Gary Schwartz, art historian and Rembrandt scholar, owning the portraits was a matter of national prestige for both the Netherlands and France. As early as September 2015, both the Rijksmuseum in Amsterdam and the Dutch government negotiated an agreement to bring €80 million to the table each in order to secure the paintings. Triggered by the eagerness of the Netherlands to acquire the works, the French Ministry of Culture, Fleur Pellerin, also offered €80 million to buy one of the portraits, with assistance provided by the Banque de France. According to Pellerin, France was ready to split the works with the Netherlands, even though there were no signs of agreement on the Dutch side and the uncertainty whether portrait owner Eric de Rothschild would even agree to separate the portraits.

The willingness of the Dutch government to massively contribute to the acquisition of the paintings surprised many. Arnold Witte, the head of art history at the Royal Netherlands Institute in Rome, noted that this would be the most expensive acquisition made by a public institution to this day. He further added that, given the current situation, if there is a will, there is a way to provide the necessary money. Indeed, the Dutch government had found a way to fund the purchase of a national treasure in the past: the government acquired Dutch national treasure “Victory Boogie Woogie” by Piet Mondrian in 1998 for 35 million. The public outcry in response to the government’s decision to spend such an amount at one time was widespread.

The desire of both countries to secure the masterworks for themselves clashed with the impossibility to pay the high asking price. A compromise was reached in the form of an intergovernmental agreement between France and the Netherlands, which stipulated that the Netherlands would own Maerten’s portrait and France would own the Oopjen portrait. The intergovernmental agreement further indicated that the works may never be separated from one another. To ensure that the portraits are always together, the pact contains firm provisions according to which the portraits will always be exhibited side by side, alternating between the Louvre and the Rijksmuseum. Both museums also agreed to incur joint responsibilities for the portraits. Furthermore, the agreement also allegedly memorialized the agreement to ban loans of the two portraits to institutions outside the two nations.

From a sequence of correspondence sent between the legal representatives of both parties, it turns out that the joint ownership transaction was supported by three legal documents. The documents included a protocol of cultural cooperation, which is a political document expressing the intent of the parties to engage; the intergovernmental agreement between the two countries; and, finally, the purchase agreement. The French representatives, in the explanations regarding French law, stressed the importance of mentioning that the contracts explain clearly that it is not a joint ownership, but rather a joint responsibility towards the paintings.  

Legal Ramifications of the Joint Purchase

Historically, France has been very protective towards its cultural heritage, as demonstrated by French patrimony laws regarding national treasures. In this fashion, article L 111-1 of the Code of French Heritage defines the notion of national treasure. Cultural assets that qualify as national treasures are works within public collections, historic monuments and those works of major interest for national heritage. If the work passes a set value and seniority threshold, it may be subject to an export license refusal. Accordingly, if an item is older than 50 years and valued at more than €150,000, it may not granted the export license and the work cannot leave the country for a period of 30 months–a period in which the French government or a private patron could raise the required amount to acquire the works. In this case, even though the two portraits satisfied the two national treasure qualification requirements, the export license was granted without even submitting documents for the review of the Advisory Board of National Treasures. The Louvre and the French Ministry invoked “lack of funds” as an explanation for the granting of the export papers, even though some questioned the influence of the Rothschild family on the expedience of the process.

According to French law, the joint purchase by two Museums and subsequent transnational ownership of the works would have been unprecedented and perhaps legally impossible. However, the French government circumvented this difficulty by the separate and individual ownership of each of the portraits by the two governments. Accordingly, the Louvre owns Oopjen’s portrait while the Rijksmuseum owns Maerten’s, which satisfied French acquisition legislation.

Reaction to the Sale

In France, the sale was met with harsh criticism. For example, the French publication, La Tribune de L’Art, had very strong opinion on the matter, and expressed disappointment that the Ministry of Culture and the Louvre did not declare the works as national treasures by 2013, thus making them then available for sale. Had the works been declared national treasure, the sale would have been delayed for 30 months, giving the chance to the French state or a private patron to acquire the works. However, the Louvre and the Ministry explained that even if they would have delayed the sale, it would not have been enough to raise the necessary funds.

Inevitably, Eric de Rothschild, the portraits’ owner before the sale to France and the Netherlands, was also targeted by criticism. La Tribune de l’Art accused him of betraying the spirit of his family’s patronage, going so far as to say that Rothschild “should have honored his name.” In their opinion, even though he had the right to sell the work to whomever offered the highest price, as a great patron of art and as a member of Société des Amis du Louvre, Rothschild should have approached the museum and settled for a price that would have allowed the paintings to remain in the country unconditionally.

   In the Netherlands, the opinion regarding this sale and the decision of the government to pledge such a big amount for the purchase varied. Dutch Parliamentary leader Alexander Pechtold played an important role in securing the Rembrandts. He led the campaign to raise the necessary funds for the sale and received praise for the fact that someone in his position would focus on works of Dutch cultural heritage. Dutch Minister Bussemaker explained that this was an opportunity that would never come again and, as such, had to be seized.

On the other hand, when asked on the street for their opinion, a number of individuals noted that in these times, such a great amount of money, spent at once, seemed excessive.

Conclusion

Joint ownership of artworks by two governments remains unusual and is not without complications. For example, in 2009 and 2012 respectively, two Titian paintings were purchased by the National Gallery in London and the National Gallery of Scotland for $147 million. Now, the status of this duo may be in jeopardy with the recent Brexit vote. Shared ownership of works, however, can be applied on smaller scales. Dual ownership of videos is occurring more often because it is logistically easier, such as with the joint acquisition of The Clock (Christian Marclay) by the Tate, the Centre Pompidou and the Israel Museum.

Although the examples above demonstrate other instances of dual acquisition, the joint purchase of the Rembrandt portraits is outstanding for a number of reasons: first, due to the record amount paid for the art by two nations and second, due to the unusual ownership arrangements between them. Pooling together extensive economic and political forces, both countries successfully secured two European masterpieces. It is unclear whether potential buyers of related artworks in the future will be able to use this dual acquisition model to guide their dealings, as the circumstances surrounding the Rembrandt portraits’ creation and ownership are unique in their own right. If nothing else, one positive outcome of the two nations cooperating is the the fact that for the first time in a long period, the portraits will be publicly displayed. Sales taxes, if any, seems to be owed exclusively to the French government.

Sources:

*About the Author: Ana T. Iacob is a jurist living in Amsterdam, the Netherlands. She has a Master in European Private Law from the University of Amsterdam and is interested in art and intellectual property law.

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

 

No Secrets about Money Laundering

By David Honig, Esq.*

Aside from drugs, art is the largest unregulated market in the world. ~ 

The Mona Lisa Curse  

Why does it seem like most notorious drug dealers and dictators have vast collections of art? Part of the reason is that most people love art and it happens to be easy to hide. Even though people’s interests and tastes may differ, the desire to collect or at the very least view art is consistent among large segments of the population. Read our recent review of “Possession: The Curious History of Private Collectors from Antiquity to the Present.”

There is however, a more sinister incentive to “collect” valuable art. Art, especially paintings on canvas by a select group of artists, is easier to move and store than other assets of similar value, such as precious metals or cash. Patricia Cohen, Valuable as Art but Priceless as Tool to Launder Money, N.Y. Times, (May 12, 2013), at A.1. As a moveable commodity, for example, if rebel forces are raiding a dictator’s palatial compound it would be very easy to pull a painting off the wall, remove it from its frame and escape with an asset worth millions of dollars.

In 2007 a Basquiat work titled Hannibal  was brought into the United States by Edemar Cid Ferreira, a Brazilian banker who purchased numerous works of art in a money laundering scheme. Id. Around the same time Ferreira smuggled art worth around $30 million out of Brazil to avoid paying debts owed. Id. At the time the painting was valued at $8 million USD – in order to match the value he would have needed to move 574.88 lbs of gold (using 2008 prices) or 176 lbs of $100 bills. A painting, then, is a more attractive commodity for holding value from illicit gains since both gold and paper money are heavier and harder to transport, and paper money can be traced. A painting on the other hand can be easily packed in one’s suitcase hidden between shirts, or rolled up into a yoga bag. In fact, it seems Ferreira did just that. According to the New York Times article, in order to enter the United States without documentation or taxation Ferreira had Hannibal declared as an unnamed painting worth $100. Id

More recently a gallery owner in Philadelphia pled guilty to money laundering. In 2011 federal agents raided the house of drug trafficker Ronald Belciano where they discovered $2.6 million dollars in a fish tank and art, worth $619,000, that was used to launder drug money. Jeremy Roebuck,  Philly.com (Jan. 25. 2015). After the raid, Belciano agreed to cooperate with the government to build a case against Nathan Isen, the owner of the gallery who sold him the art in order to launder money. Id. Roebuck introduced Isen to an undercover agent posing as a drug dealer. The agent, who was introduced as being a marijuana grower, made numerous references to growing marijuana and even apologized to Isen for the cash “smell[ing] like marijuana, [because] she stored it next to the drugs.” Id.

Art’s monetary value is not the only reason why it is often found in the homes of those with less than savory occupations. The secrecy and lack of regulation in the art market lends itself to a certain flexibility in the range of crimes such as money laundering. Money laundering is the process by which money obtained through ill means is “cleansed” and made to appear legitimately obtained. Often times in popular culture, businesses depicted as ‘fronts,’ such as restaurants, dry cleaners or other businesses are used for this purpose.

There is also the benefit of liquidity. When assets are liquid they can be traded more freely and turned into or used to purchase other assets. If someone has a net worth of $10 million but her net worth is solely derived from a painting that can never be sold is she really worth $10 million? If she can’t sell the painting she can’t obtain cash which means she can’t buy anything with the $10 million.

Just as beneficial as the relative liquidity of art is the notoriously secretive art market. There are various reason for this, such as avoidance of getting caught, embarrassment and safety. Some people are forced to sell their art collections because they need access to immediate cash or other types of transactions. Some do not want people to know they have enough money to purchase the works or that they own a particular work. According to an article cited by Fausto Martin De Sanctis’ Money Laundering Through Art: A Criminal Justice Perspective, “Christie’s only asks the sellers where the proceeds from the sale ought to be deposited…” Fausto Martin De Sanctis, Money Laundering Through Art: A Criminal Justice Perspective 115 (Springer 2013). Whatever the reason for this secrecy, it allows for the market to be abused.

One reason for this secrecy is the lack of legal requirements for artworks to be registered. De Sanctis points out that this feature makes art a better vehicle than real estate for money laundering. Real estate is often used for money laundering for the same reason as art, high value, market speculation and cash purchases. Id. at 58. Additionally, art and real estate “are classified as non-financial, and therefore lack the regulation and rigid, standardized controls in pace for the financial sector.” Id. at 58. A key difference is the incentive to record ownership in real estate with local government, to create security in ownership. In fact, De Sanctis notes that “regulatory agencies pay little attention to the art world.” Id. at 59

In reference to the art market, economist Nouriel Roubini points out, “there is no tracking of it through the financial system and you can park it into a freeport” Interview by Cristina Alesci with Nouriel Roubini, Professor, NYU Stern School of Business (May 11, 2015). A freeport is a warehouse where valuables are stored. By storing art in a freeport the owner of the work, or valuables, avoids paying taxes for as long as the work is stored there. David Segal, Swiss Freeports Are Home for a Growing Treasury of Art, N.Y. Times (July 21, 2012). Freeports are also notoriously secret. In fact, people who work there do not know what is being stored in the adjacent vaults. Id.

The secretiveness of both freeports and the art market makes money laundering through this avenue is so lucrative. Once a person purchases a piece of art, she can ship it to Geneva, Delaware or whatever freeport she chooses, store it there indefinitely and avoid paying taxes for as long as the art resides in that freeport. Since that work was purchased in secret, does not need to be registered, and is stored anonymously in a warehouse its existence as an investment is shielded until the owner finds an opportune time to sell. 

Although the regulations on the art market are minimal, it is not completely devoid of regulation or safeguards against money laundering. First, 26 U.S.C. 6050I and 31 U.S.C. 533 requires any party who receives cash in excess of $10,000 in the same, or two related, transactions to file a report with the IRS and Financial Crimes Enforcement Network respectively. Both of these laws require the recipient to state the amount of cash, the name of the paying party, the nature of the transaction and date of the transaction. Further, both have a catch-all provision that would allow either the IRS or the Financial Crimes Enforcement Network to ask for more information. The European Commission requires a similar filing for cash purchases over €7,500 and Switzerland’s Federal Assembly, its parliament, places restrictions on cash transactions that exceed CHF 100,000. Hili Perlson, Switzerland Cracks Down on Art Market with Tighter Anti Money Laundering Laws, artnet news (June 2, 2015).

The Federal Assembly also passed a law, which went into effect on January 1, 2016, that creates more regulation for freeports. Henri Neuendof, Switzerland’s Tough New Stance on Freeports Will Shake the Art World, artnet news (November 19, 2015). Among new regulations are a six month time limit for storage of goods to be exported and a requirement that freeport’s keep an inventory of goods stored and their owners. Id. Since the money laundering necessitates secrecy there is no real way to tell if preemption methods will be enough. According to the NYU Stern School of Business Professor, Nouriel Roubini, self-regulation is probably the best way to move forward. There may not be an easy solution but it is worth exploring new avenues that will prevent the use of art for the facilitation of illegal transactions and from those works being hidden away from the sight of the world.

Sources:

About the Author: David Honig is a post graduate law fellow at the Center for Art Law. He is a member of the Brooklyn Law School class of 2015. While attending law school he focused his studies on intellectual property and was a member of the Brooklyn Law Incubator & Policy (BLIP) Clinic. He is admitted to New York and New Jersey state bars. In the Fall of 2016 he will be pursuing an LL.M. in taxation from NYU Law.

Disclaimer: This article is for educational purposes only and is not meant to provide legal advice. Readers should not construe or rely on any comment or statement in this article as legal advise. Instead, readers should seek an attorney.

Book Review: “Possession: The Curious History of Private Collectors from Antiquity to the Present” (2016)

Screen Shot 2016-07-07 at 12.07.49 PMBy Nina Mesfin*

While museums today seem to be gradually withdrawing from the purchase and sale of artworks on the private art market, private collectors have been able to capitalize upon fewer competitors in the field. As collectors are finding more acquisition opportunities, it is more imperative than ever that collectors demonstrate prudence in their purchases. Erin L. Thompson’s Possession: The Curious History of Private Collectors from Antiquity to the Present, published on May 24, 2016, analyzes private art collectors’ developing psyche and motivations through time in an attempt to combat the looting and trafficking of antiquities. While Thompson is not the first scholar to address these ongoing issues, her approach is fresh. Lorenzo de’ Medici, scion of an immensely powerful Italian family in the 15th century, Queen Christina of Sweden (1626-89), Thomas Howard, the Earl of Arundel in the end of the 16th century and Thomas Herbert, the eighth Earl of Pembroke in the early 18th century, both British, and early 20th century American industrialist J. Paul Getty are just some of the art collectors, all of whom possessed important art collections in their respective times, that Thompson introduces to readers throughout the course of the book. Utilizing historical anecdotes and provocative caricatures, Thompson constructs a new framework through which her non-exclusive audience can analyze and begin to understand illicit art dealings, their ancient underpinnings, and their contemporary implications viewed through the lens of the art collector.

Thompson begins her book by providing working definitions of such basics as “collectors” and “antiquities,” ensuring that the book is accessible to a wide audience. She also states her objective clearly: to investigate “the motives of antiquities collectors” in order to “help stop the ongoing looting and destruction of archaeological sites that currently supplies the market for collectible antiquities.”Id.at 2. Clear in the author’s aim and equipped with relevant terms, the reader is well-prepared to delve into Thompson’s exploration of the private collector’s internal motives. In the first two chapters, The Powers and Perils of the Antique: The Birth of Collecting and Collecting Identities, Thompson discusses how the objects one chooses to collect come to represent one’s identity. Collectors, therefore, are simultaneously constructing vast collections and personas. Thompson uses case studies, such as King Attalus I, who inherited Pergamon in 241 BCE and acquired Greek antiquities in order to ensure the kingdom’s “place in history,” to illustrate these points. Her use of case studies is an asset to her critique of private collecting because the case studies provide concrete examples of the effects collectors can have on the ways future generations understand past cultures. In addition to making the issues raised in Possession more tangible, these case studies and historical anecdotes establish multiple narratives, making Possession an engaging read, even for those already well-versed in art and artifact history.

Thompson then launches into a discussion of two issues that continue to plague the art market and private collections: restoration and forgery. In Chapter Three, entitled “By Means of a Little Castration”: Restoration and Manipulation, Thompson seamlessly progresses from the evolution of art restoration (superficial to invasive) into her analysis of art forgeries. Thompson describes Henry Blundell (1724-1810), an English collector who castrated a statue of Hermaphrodite, to illustrate just how “blurred was the line between restoration and forgery.” Id.at 49. As Blundell was having his statue restored, he ordered art restorers to castrate the piece. Thompson posits that the physical castration of the piece, or its “moralistic manipulation,” transformed what would have been a restored art piece into a forgery. Id.at 45. “Forgeries reveal collectors’ desire and motivation even more clearly than restoration,” she claims, and “[a] restoration must begin from some actual and perhaps unwieldy fragment of the past. A forgery can exactly mirror what the collector wishes were true about the past and his connection it.” Id.at 67. Thompson makes the point that although this “era of manipulative restoration” might be over, it is still hard to assess whether artifacts today look as they did in antiquity, challenging both the premium placed on authenticity and the definition itself. Perhaps the only thing that is indisputably authentic about a piece is the unique relationship between the piece itself and its collector. 

Thompson’s analysis of restored pieces versus forgeries is meant to provide insight into the collector’s infatuation with artifacts. What was, and continues to be so appealing about collecting is that it affords the collector an opportunity to craft his or her own narrative. Collectors are so motivated by their desire to defy the realities of the present that they not only seek to restore the past, but to reforge it in their own light. By comparing restoration to forgery, Thompson highlights the collector’s ever-increasing obsession with cultural artifacts because these artifacts allow collectors to refashion history, granting them authority over the past. Thompson explains that emphasizing the collector’s relationship with his or her artifacts may be a help to cultural heritage because “the collector’s love of the past must be understood and harnessed if we are to be able to have a past to love at all.” Id.at 182. In other words, Possession functions under the premise that in order to eradicate an issue, one must appreciate its complexity. The objects which scholars and other authorities on antiquities seek to preserve today are embedded in this collection history. In order to fully appreciate and save these objects, we must appreciate that history as well.

This slideshow requires JavaScript.

 

The remaining chapters in the first half of Possession continue to focus mainly on the historical underpinnings of art collections. However, starting with Chapter Seven: The History of Looting and Smuggling—and What They Destroy, Thompson begins weaving in contemporary scandals and juxtaposing them against the historical accounts of infamous collectors she discussed in earlier chapters. Here, she reaches the crux of her argument: that informing modern collectors that their relationship with the contemporary illicit art market, similar to those of past collectors, perpetuates artifact looting and trafficking and thus cultural heritage devastation. Private collectors, even those pure in intention, are complicit in the destruction of the past they so desperately seek to preserve. Using the tools with which they were provided in the first half of Possession, readers can begin engaging in dialogue pertaining to antiquities trafficking and looting, more specifically how to most effectively preserve history through antiquities. Thompson uses the past to educate readers on the power private collectors wield over our understanding of history, urging her audience to recognize that society today stands at a critical juncture in the realm of cultural heritage given the new wave of destruction occurring all over the world, especially in the Middle East. By presenting issues pertaining to cultural heritage vis-a-vis art collecting, Thompson pushes readers to reassess how norms established in the private art market can negatively manifest in preservation efforts.

Chapter Eight: Collectors’ Failed Justifications for Looting and Smuggling introduces readers to some of the difficulties archeologists and other scholars have found in trying to persuade private collectors to stop collecting. Thompson laments society’s failure to acknowledge that collecting practices are deeply embedded in a social network. In order to communicate the ill-effects of collecting to the collector himself–in the hopes of shaping his or her behavior–one must understand that for the collector, “[l]ove for the members of the network is put into conflict with love for the past.” Id.at 139. Thompson’s proposed strategy refrains from alienating the collector because it recognizes that most collectors have “professed desires to be useful to scholars”. Id.at 173. Thompson acknowledges the collectors’ power and proposes treating them as allies as opposed to ostracizing them from the antiquities world. Despite the eccentricities of the figures Thompson describes, it is clear that like archaeologists and scholars, collectors also value the past. In Chapter 9: Collecting to Save the Past, Thompson suggests ways to mediate the differences between scholars and other authorities seeking to preserve antiquities. Perhaps one of the more provocative suggestions is rethinking attitudes toward touch. Id.at 179. In other words, Thompson points to the fact that many private collectors relish the intimate relationship that touch fosters between them and their objects, suggesting that individual collectors may be more inclined to stop collecting if public institutions allowed patrons to physically handle objects.

Possession is a well-crafted piece of writing in which the author, who earned her art history Ph.D. from Columbia University and her J.D. from Columbia Law School, takes her readers on a historical journey through the evolution of private art and artifact collecting. Although the balance between her own analysis and the carefully selected accounts of “history’s most infamous collectors” may seem to favor the latter, each anecdote is highly entertaining and provides the reader with a strong foundation for her later analyses. Thompson’s writing is elegant and provides the reader with a breadth of history and a valuable survey of the private art market. More importantly, Thompson demonstrates how the atrocities being committed against antiquities and cultural heritage sites today are rooted in history because “[w]e have not yet outgrown our beliefs in the power of antiquities, and the efficacy of destroying them to control these powers,” citing the demolition of the Buddha in the Bamiyan Valley of Afghanistan. Id.at 22. Thompson immerses her readers in the world of antiquities, one that knows no temporal boundaries, and by the end of Possession, readers cannot help but to develop a stake in contemporary art market debates.

Sources:

Erin L. Thompson, Possession: The Curious History of Private Collectors from Antiquity to the Present (2016).

About the Author: Nina Mesfin is a Summer 2016 legal intern at Center for Art Law. She is a rising junior at Yale University majoring in Ethnicity, Race and Migration and concentrating in Art, Literature and Narratives of Race and Ethnicity. Nina is also a scholar in the Yale Multidisciplinary Academic Program in Human Rights.

Disclaimer: Reading this book or its review is no substitute for getting your legal questions answered by a trained attorney.

Fine Art Storage Services v. Insurance Companies: A Cautionary Tale

By Scotti Hill*

Hindsight is 20/20, however, art storage facilities are supposed to be forward looking to make sure that property entrusted to them for safekeeping remains protected and unaltered while in their custody. Elements such as temperature, humidity and pest control are vital to preserve artworks from any damage or total loss. Certain mediums like paper, canvas, plaster, metal, and clay are of course particularly vulnerable to temperature and humidity fluctuations.

Christie’s Fine Art Storage Services (CFASS), an owned subsidiary of Christie’s auction house, has been named a defendant in multiple lawsuits for damage, incurred during 2012’s hurricane Sandy, to artworks housed at its Brooklyn facility. In late October 2013, three insurance companies: XL Specialty, Axa and Starnet, mounted suits against CFASS, for gross negligence, breach of bailment, negligence, breach of contract, negligent misrepresentation, and fraudulent misrepresentation stemming from CFASS failure to prepare for the storm’s onslaught.

The Storm of the Century

In the fall of 2012, weather prognostic reports warned of a superstorm headed for New York. Ultimately, artworks in many studios, galleries and storage facilities were severely damaged when Sandy, a tropical storm that was updated to a hurricane, hit the tri-state area on October 29, 2012.

The Red Hook area of Brooklyn, where CFASS’ storage facility is located, was labeled a high-risk flood area, securing the New York City Office of Emergency Management’s rating of a “Zone A evacuated flood zone.” With media reports circulating about the impending storm, CFASS, as alleged in the complaints, began reassuring clients that appropriate measures were being taken to protect their property from damage.

Unfortunately, certain works of art stored at CFASS were damaged during the hurricane. In the aftermath of the storm, some pieces were unsalvageable, others resulted in complete loss, while others still were sent to conservators for restoration. In such cases, damaged artwork claims require owners to report losses to insurance companies, who would seek compensation from the entity responsible for the damage.

The damages incurred to such an enormous concentration of wealth in one space resulted in significant losses for insurers. In a few instances when the insurance companies reviewed the circumstances that resulted in such unprecedented level of claims and sought to mitigate their expenses by refusing to pay claims resulting from gross negligence. After all, with 27,000 people per square mile, New York is the most densely populated city in the United States, with damage or full compensation for losses to multimillion-dollar property having the potential to increase premiums or drive out many of the insurance carriers.

The Waiver of Subrogation and Limitation of Liability Clause

In lawsuits resulting from damages to art stored at CFASS, the point of contention is the manner by which liability is allocated in CFASS’ storage contracts. Some contracts between the storage facility and its clients required clients to obtain an art insurance policy.  In other instances there may have been waivers of subrogation or a limitation of liability clause.

A waiver of subrogation relinquishes an insurer’s right to assert claims against the company responsible for the damage. Alternatively, a limitation clause generally limits the companies liability based on the weight of the goods.

According to U.C.C. § 7-204(2), a warehouse is bound by a reasonable duty of care when storing property in its space, however such clause cannot negate the elementary duty of care required. In the case of New York State law,  NY UCC § 7-204 (2014) (a), “a warehouse is liable for damages for loss of or injury  to  the  goods  caused  by  its failure to exercise care with regard to the goods   that  a  reasonably  careful  person  would   exercise   under   similar  circumstances.  Unless otherwise agreed, the warehouse is not liable for  damages that could not have been avoided by the exercise of that care.

Does Gross Negligence Alter Waivers of Subrogation and LLC’s?

In XL Speciality Ins. Co. v. CFASS, filed on October 29, 2013, petitioners sought reimbursement for a $700,000 payment to the damaged gallery, Chowaiki & Co. In this case, the New York supreme court granted CFASS’ motion to dismiss the complaint due to the adequate consideration provided by both XL Specialty Insurance Corporation and their client Chowalki. Similarly, in Starnet Ins. Co. v CFASS, filed on October 28, 2013, the estate of LeRoy Neiman brought suit to recover damages resulting from harm to 277 artworks. Plaintiffs in AXA insurance sued on behalf of Jacqueline Piatigorsky’s trust seeking $1.5 million, in which case the trust alleges that CFASS failed to alert them to a lack of safety measures and personnel in place to protect their art from damage.

Petitioners’ claims of gross negligence were based on evidence that art was left in staging areas on the warehouse’s ground floor and that despite a reassuring email stating otherwise, no action was taken to protect this property from imminent danger. In its March 17, 2016 decision to reverse the lower court’s dismissal of petitioner’s complaint, the court in XL Specialty noted that in 2011, CFASS took extra precautions, such as moving art above the ground floor and hiring extra personnel, to prepare for the arrival of hurricane Irene, a storm that largely avoided the city.

In all suits, Petitioners argue that CFASS’s gross negligence arose when, despite assurance that they would do so, they failed to raise artworks from the ground floor of the warehouse, leaving them in the direct path of flooding. Such failure to act, therefore constituted a material breach to the storage contract, as both the parties and their respective insurance companies reasonably relied on CFASS to safely house the art and provide accurate and reliable status updates about its condition. So far, CFASS points to the liability waivers and labels Sandy an ‘Act of God’ in rebuffing claims of negligence.   

While the plaintiffs in each case allege gross negligence, breach of contract and bailment, and fraudulent and negligent misrepresentation, the lower courts have maintained that subrogation waivers often negate claims for gross negligence. In response, the plaintiffs in each suit argue that the subrogation provision unfairly excuses CFASS gross negligence. Judge Saliann Scarpulla, who presided over each of the three cases, refuted this claim, arguing that instead of exempting CFASS from liability, the provision simply requires “one of the parties to the contract to provide insurance for all the parties.” Board of Educ., Union Free School Dist. No. 3, Town of Brookhaven v. Valden Assocs., 46 N.Y.2d 653, 657, 389 N.E.2d 798, 416 N.Y.S.2d 202 (1979); Abacus Fed. Sav. Bank v. ADT Sec. Servs., Inc., 18 N.Y.3d 675, 684, 967 N.E.2d 666, 944 N.Y.S.2d 443 (2012).

In all three cases, the New York Supreme Court, New York County, initially upheld the validity of such provisions in judgments in favor of CFASS. On appeal, however CFASS’ motion to dismiss XL Specialty’s complaint was reversed. Holding that the contract’s waiver of subrogation was unenforceable, the New York Supreme Court, Appellate Division, held “provisions purporting to exempt the bailee from liability for damage to stored goods from perils against which the bailor had secured insurance, even when caused by the bailee’s negligence have been held to run afoul of the statutory scheme of UCC Article 7.” XL Specialty Ins. Co. v. Christie’s Fine Art Storage Servs., Inc., 137 A.D.3d 563, 566, 27 N.Y.S.3d 528, 530 (N.Y. App. Div. 2016).

With the relief of knowing that one of their main grievances has been acknowledged Axa and Starnet are hoping that appeals will generate similar reversals in their cases.

Conclusion

The immeasurable cultural significance of art renders its destruction not only economic, but also sentimental. The unfortunate events surrounding the CFASS lawsuits provide stark lessons about the costs of collecting, which extends far beyond purchase and insurance premiums to include storage, shipping and when necessary-conservation. While there is a strong drive to preserve artifacts as assets, all artworks have inherent vices and are vulnerable to the elements, incentivizing collectors to perform due diligence when acquiring items and finding spaces to house them.

Select Sources:

About the Author: Scotti Hill is a J.D. Candidate, 2018 from the S.J. Quinney College of Law at the University of Utah. She serves as a summer 2016 intern for the Center for Art Law, and works as an art critic and curator. Prior to law school, she received a Master’s Degree in art history and visual studies. She can be reached at scottiaustinhill@gmail.com

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

WYWH: Legal Primer for Artists: Leasing Commercial and Residential Space & Dealing with Tax Issues

NYFA_Logo_Hires_best-300x117

Preoccupied with their work, artists often neglect reaching out to accountants and attorneys for advice on how best to brace themselves for possible issues they may encounter. Among an artist’s various legal considerations, contracts are perhaps the most important. Contracts can be forged for consignment agreements with galleries and auction houses or for the rental of commercial and personal leases. Although contracts are invaluable for artists, a litany of complications accompany the process of facilitating, signing and executing them.

On Thursday, June 9, 2016, New York Foundation for the Arts (NYFA), in cooperation with the New York State Bar Association’s Entertainment, Arts, and Sports Law Section (EASL) and EASL’s Committee on Fine Art, gathered a panel of attorneys to offer basic legal information to artists. Attendees also included attorneys and students. The two-hour information session featured three speakers, all of whom shared valuable insights into issues pertaining to leasing commercial space, the rights of artists as residential tenants, and income and sales tax issues. The discussion was moderated by the co-chairs of EASL’s Committee on Fine Arts: Carol Steinberg, Esq. and Judith Prowda, Esq.

The first panelist to present was Jill A. Ellman, Esq. She is currently an Associate at M. Ross Associates, LLC, a law firm that handles all aspects of complex commercial litigations as well as transactional matters. Ellman focused on commercial leasing and how artists can ensure that they are protected from predatory practices such as exorbitant rent hikes, unauthorized changes to the lease and liability.

The second panelist to speak was David Frazer, Esq., Of Counsel to Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP. Having dedicated much of his career to advocating the rights of tenants, Frazer offered important advice concerning how artists can obtain the best leases while also protecting themselves. Frazer took great care to stress that artists “should not cut corners,” as record keeping is crucial to protecting one’s own personal interests. If a landlord or tenant requests any modifications to the lease, artists are encouraged to have the alterations signed by the landlord in writing and corroborated by all affected parties. Creating a paper trail of alterations to consignment agreements or real estate transactions helps protect the artist/tenant from possible abuses and in the event of future litigation.

Patricia Pernes, Esq., a Tax Consultant in the Business Tax Services sector and Art & Finance Group of a Big Four accounting firm, echoed Frazer’s sentiments regarding an artist’s responsibility to exercise due diligence in all formal transactions. Pernes, however, shifted the conversation from leasing issues to tax deductions applicable to artistic labor and the pieces themselves. Throughout her presentation, Pernes emphasized the distinction between a business and hobby, with the former classification being adequate for the deduction of materials and work-related expenses and the latter not receiving such protection. The principle element is whether the work is created in furtherance of a profit-driven business, in which case tax deductions can be used to incentivize growth. As with contracts, good record keeping is important for tax deductions as well.

The formal discussion was followed by a lively questions and answers session where attendees were able to ask the attorneys about legal provisions specific to their craft. Questions ranged from deductions that can be claimed by musicians for research to leasing for art nonprofit organizations. Ellman, Pernes and Frazer took the time to delve into each question’s nuance, applying their expertise to a motley of hypothetical situations and concluding what was, indeed, a priceless evening.

Disclaimer: This article is for educational purposes only and is not meant to provide legal advice. Readers should not construe or rely on any comment or statement in this article as legal advice. Instead, readers should seek an attorney.

Realities of Fan Fiction: Paramout To Boldly Drop Lawsuit

By David Honig, Esq.*

Star_Trek_TOS_logo_(1)

In 1966 the world was introduced to the crew of the USS Enterprise NCC-1701! On September 8, 2016, 50 years will have passed since we joined that intrepid crew on its five year mission. Over the course of
a half century
Star Trek has amassed a following unlike any other. The original series, which only made it to the air because of Lucille Ball, lasted only three seasons before it was canceled. Gene Roddenberry’s tale of a future where humanity put its petty differences aside to unite and explore the stars did not end, however, when the last episode aired on June 3, 1969.

tumblr_o2awj8Rh0Z1rwjpnyo1_500After being canceled Star Trek spawned a franchise that consists of an animated television series, major motion pictures, comic books, novels, numerous spin-off shows and a Las Vegas attraction. But most importantly, Star Trek took firm root in the hearts of its fans. As a testament to their devotion, fans have learned Star Trek’s alien language Klingon, going as far as translating Hamlet, and a few other works, into their beloved alien tongue.

Like all good works of fiction, Star Trek developed a life of its own and inspired a parade of  unauthorized fan fiction. While a phenomenon like Star Trek lives and dies with the fans, it  exists as property owned not by the fans but by a major corporation. As such, Paramount and CBS have a vested interest in protecting the rights associated with their copyrights under 17 U.S.C. 106. Specifically, the copyright holder has exclusive rights to reproduce, create derivative works, distribute copies, and perform and display the work publicly.

Fan fiction regularly infringes a copyright because copyright often covers more than just the work itself. Instead, copyright has been extended to cover characters and settings as well as other literary elements, see Walt Disney Productions v. Air Pirates, 581 F.2d 751, 754-5 (2d Cir. 1978).

Fan fiction violates the exclusive rights of a copyright holder in two ways, expressly or through derivative works. A piece of fan fiction that incorporates a character or setting from the original work infringes – since, as just discussed, the character is subject to copyright protection and using the character violates the exclusive right to reproduce. Similarly, fan fiction violates the exclusive right to create derivative works even as  the fan-author creates her own story, because of familiar settings or characters derived from the original work. It is also worth noting that selling or distributing fan fiction does not change the fact that it infringes the original copyright. Commercializing a work, or more precisely the effect on the market for the original copyright, only comes in when determining whether the fair use exception applies not whether something infringes.

When deciding to prosecute copyright infringement the holder is faced with a Kobayashi Maru scenario – in the Star Trek universe, the Kobayashi Maru refers to a training exercise designed to place starfleet cadets in a no-win scenario. The copyright holder must decide whether it should allow the copyright to be infringed or enforce its rights and risk the ire of fans. The amount of money involved in fan fiction infringement is usually nominal compared to the risk of alienating fans. Additionally, because of the  uncertainty of fair use protection under 17 U.S.C. 107, fan fiction is often left alone even when the potential infringer is making money. This is a simple cost benefit analysis. However, there are instances where the holder does assert its copyright and recently some Star Trek fan fiction has fallen into that category.

Anyone who has ever been to a comic convention knows that there are people dressed up as starfleet officers, members of the United Federation of Planets or other Star Trek Characters. These fans are often wearing uniforms that they made themselves which include elements that are subject to copyright protection – such as the starfleet insignia. For various reasons Paramount and CBS will not go after these fans, the damages are de minimis

In addition to wearing costumes, many of these fans will also create their own movies, comics or other form of art – even the Internal Revenue Service is not above creating such a video. These videos are usually viewed as harmless since they have no impact on the market for the genuine article and if anything they endear fans to the source even more by allowing them to continue to engage in ways that traditional content does not allow. There is a limit, however, to what the Star Trek copyright holders will accept before they begin enforcing their rights. It seems that a fan project that raised over a million dollars and was set to be released the same year as Paramount’s next installment in the Star Trek motion picture franchise was too much.

Star Trek: Axanar, a fan film set before the original 1966 television series, raised over a million dollars on Indiegogo and Kickstarter. The film, which follows a successful short that raised over $100,000 on Kickstarter in 2014, raised its funds with some encouragement from Star Trek alum George Takei. With a mounting economic incentive, on December 29, 2015 Paramount and CBS filed a lawsuit against the producer of the film, Axanar Productions (“Axanar”), alleging copyright infringement.

george_takei_sulu_star_trek

George Takei as Sulu on the set of Star Trek

Among other aspects of Star Trek such as history and characters, the complaint claimed a copyright over languages. What might have seemed to be one more violation to the copyright holder and its attorneys ended up developing a life of its own.

First Axanar, responded by filing a motion to dismiss claiming that Klingon, a language invented for Star Trek, could not be protected by copyright law under Baker v. Seldon, 101 U.S. 99 (1879), because it is an idea or system. In response, Paramount claimed that the Klingon language isn’t useful, wholly fictitious and “there are no Klingons with whom to communicate.” After Paramount responded to Axanar’s motion the Language Creation Society submitted an amicus brief in support of Axanar.

The brief begins with a curious footnote quoting Marc Okrand, author of The Klingon Dictionary and creator of the language, claiming  Okrand “has asserted that the Klingon language, tlhlngan Hol, was received by him from a captured Klingon named Maltz.” The brief thus concludes that Plaintiffs cannot claim otherwise in this litigation, citing to Arica Inst., Inc. v. Palmer, 970 F.2d 1067, 1075 (2d Cir. 1992), to support its position. The Language Creation Society does not pull any punches stating, “Feeling ownership and having ownership are not the same thing.”

The Language Creation Society’s brief is quite an enjoyable read. The brief quotes Star Trek: The Next Generation, recognizes there is a child who was raised as a native speaker of Klingon and intersperses Klingon phrases written in the Klingon alphabet throughout. What might appear as gimmicks actually make the Language Creation Society’s point stronger – Klingon is a real language spoken by real people so much so that it can be used coherently in a brief amicus curaie. If the point of filing this brief was to argue that Klingon has taken on a life of its own as a communication system then there truly is no more powerful tool to prove this postulate than by showing Klingon can indeed act as a communication system instead of just reporting on its wide use.

Alas, the issue will not be adjudicated, at least not in this case. On Friday May 20, 2016 J.J. Abrams, the director of the first two Star Trek reboot films, announced that the lawsuit against Axanar would be dropped. The announcement was made during a fan event to promote the third installment of the rebooted Star Trek franchise, which Abrams serves as a producer, Star Trek Beyond. Unfortunately, this voyage is not yet over.

Abrams merely announced that Paramount WOULD drop the lawsuit not that the lawsuit WAS dropped. In fact, four days after the announcement Axanar an answered amended complaint and filed a counterclaim to ensure it met court ordered filing deadlines. Additionally, CBS and Paramount are working on fan film guidelines and if Star Trek: Axanar, or some other fan film, does not follow those guideline then the Star Trek copyrights will most likely be enforced again. Clearly there is still work to be done before Axanar, its fans, and producers and fans of other Star Trek fan fiction can proclaim Qapla’.

About the Author: David Honig is a post graduate fellows at the Center for Art Law. He is a member of the Brooklyn Law School class of 2015. While attending law school he focused his studies on intellectual property and was a member of the Brooklyn Law Incubator & Policy (BLIP) Clinic. He is admitted to New York and New Jersey state bars. In the Fall of 2016 he will be pursuing an LL.M. in taxation from NYU Law.

Disclaimer: This article is for educational purposes only and is not meant to provide legal advice. Readers should not construe or rely on any comment or statement in this article as legal advise. Instead, readers should seek an attorney.

Parting Is Such Sweet Sorrow: Covenants Not to Compete Between Auction Houses

*By Elizabeth Weber, Esq.

Covenants not to compete (CNCs), also called non-compete clauses or simply non-competes, are commonplace in employment contracts. Generally, CNCs seek to prevent an employee from leaving his or her current employer to work for a direct competitor. CNCs typically last for a set period of time and only pertain to a specific geographic area. In specialized fields like the art market, these restrictive covenants prevent employees from moving between similar companies with the ease they would prefer. Specifically, CNCs entered into by auction house employees present unique issues to those who work in the field and seek career developments due to the limited number of major auction houses, especially within a particular geographic area.

Covenants Not to Compete

A covenant not to compete is a contractual provision in which one party, the employee, affirms that he or she will not work for a market competitor within a specified geographic area for a particular period of time after the employment period ends. CNCs are a part of  contract law and, as such, are dictated by state law. In New York,

[t]he modern, prevailing common-law standard of reasonableness for employee agreements not to compete applies a three-pronged test. A restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public.

BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 388-89 (1999) (emphasis omitted). A violation of any of the three prongs may invalidate the CNC completely unless the suit arises in a state that follows the blue pencil rule. When a particular CNC provision is overbroad, courts in blue pencil states may reform or strike the offending provisions from the contract while the rest of the CNC remains intact and partially enforceable. For example, New York allows courts to reform overbroad CNCs; Florida courts follow a mandatory CNC reformation regime; and California law does not permit the use of CNCs, although the use of CNCs to protect trade secrets in California is unsettled. Beck Reed Riven LLP’s extensive state-by-state chart provides a more in-depth view of CNC law by state.

Additionally, in Reed, Roberts Assocs. v. Strauman, a 1976 case involving the enforceability of CNCs, the New York State Court of Appeals specifically focused on the fact that “our economy is premised on the competition engendered by the uninhibited flow of services, talent and ideas. Therefore, no restrictions should fetter an employee’s right to apply to his own best advantage the skills and knowledge acquired by the overall experience of his previous employment.” Reed, Roberts Assocs. v. Strauman, 40 N.Y.2d 303, 307 (1976). Despite the Court of Appeals’ focus on an employee’s right to participate in the market economy, this right is not limitless. CNCs may be used to prevent a former employee from disclosing a company’s trade secrets or confidential client information or, alternatively, CNCs may be enforced if the former employee performed unique or extraordinary services for the former employer. Id. at 308.

Auction House CNC Case Study: Heritage Auctioneers v. Christie’s

Despite the prevalence of CNCs, few cases that involve breached covenants within the auction house world arise. One case in particular illustrates the importance of CNCs: the ongoing matter between Heritage Auctioneers & Galleries and Christie’s. Heritage Auctioneers & Galleries v. Christie’s, Sup Ct, New York County, 2014, Oing, J., index No. 651806/2014.

Heritage involves three former Heritage employees who specialized in the pre-owned luxury accessories sector (think vintage Hermès Birkin bags): Matthew Rubinger, Rachel Koffsky, and Caitlin Donovan, who worked in Heritage’s Luxury Accessories department with Rubinger serving as both Director and department head while Koffsky and Donovan held positions as Director of Operations and Director of Consignments, respectively.

According to Heritage’s complaint, Heritage hired Rubinger in 2010 to head the company’s Luxury Accessories business right out of college. The company alleges that it “invested in Rubinger’s identity” to elevate Rubinger within the auction world and brand him as the face of Heritage’s Luxury Accessories department worldwide. Complaint, Heritage Auctioneers & Galleries v. Christie’s, Sup Ct, New York County, 2014, Oing, J., index No. 651806/2014. As their Luxury Accessories business grew, Heritage hired Koffsky and Donovan in that department as well.

Four years later, in 2014, Rubinger renewed his written contract with Heritage through December 31, 2014. Rubinger’s employment contract included both CNC and non-solicitation clauses and an additional non-disclosure clause in which he affirmed that he would not disclose any of Heritage’s trade secrets. Specifically, the CNC provision in Rubinger’s contract stated that Rubinger would not work for a Heritage competitor anywhere in North America for twenty-four months after ending his employment with Heritage. Koffsky and Donovan’s employment contracts included a nondisclosure agreement only. The text of Rubinger’s CNC as shown in Heritage’s complaint is included below.

This slideshow requires JavaScript.

Images found in Complaint, Heritage Auctioneers & Galleries v. Christie’s, Sup Ct, New York County, 2014, Oing, J., index No. 651806/2014.

During the week of May 12, 2014, Christie’s extended offers of employment to Rubinger, Koffsky, and Donovan. On May 16th, Rubinger accepted the offer from Christie’s Hong Kong, Ltd., which is based and conducts business in Hong Kong, China. Koffsky and Donovan accepted offers from Christie’s, Inc., which is based in the United States. The three resigned from Heritage the following Monday, May 19th.

Heritage subsequently filed suit against Christie’s, Rubinger, Koffsky, and Donovan on June 13, 2014. The complaint alleges that Christie’s engaged in unfair business practices; tortiously interfered with Heritage contracts; induced, aided, and abetted Heritage employees to violate their fiduciary duties; and misappropriated trade secrets and other proprietary information. The complaint further alleges that Rubinger, Koffsky, and Donovan all breached their fiduciary duty of loyalty to Heritage in addition to breaching their Heritage employment contracts.

In response, the defendants asserted that Christie’s Hong Kong and Rubinger specifically structured their employment arrangement to avoid breaching Rubinger’s CNC with Heritage. Defendants’ Memorandum of Law in Opposition to Plaintiff’s Motion for a Preliminary Injunction, Heritage Auctioneers & Galleries v. Christie’s, Sup Ct, New York County, 2014, Oing, J., index No. 651806/2014. By working in Hong Kong, not the United States, Christie’s and Rubinger argued that Rubinger complied with the territorial terms of his CNC. Christie’s further stated that Rubinger, Koffsky, and Donovan were instructed not to use or disclose to Christie’s or use for Christie’s benefit any information derived from their time with Heritage. The defendants also noted that Heritage failed to provide any evidence that Rubinger, Koffsky, or Donovan utilized any confidential information thus far during their employ with Christie’s.

Heritage is currently pending in the New York Supreme Court before Justice Jeffrey K. Oing, and updates regarding this case will follow.

What Does the Future Hold for Auction House CNCs?

In addition to Heritage, recent shakeups at Christie’s and Sotheby’s have reinforced how important CNCs are for auction houses. For example, after the former chairman of Christie’s Americas, Marc Porter, resigned his position with Christie’s in December 2015, The New York Times reported that “after a noncompete period of about a year, [Porter] will join Sotheby’s in a high-ranking position that has yet to be announced but is expected to involve international client development.” The fact that Porter must wait about a year before joining Sotheby’s puts both Sotheby’s and Porter at a distinct disadvantage: the company must hold Porter’s future position open during this time period while Porter awaits the expiration of the CNC period before joining Sotheby’s.

Interestingly, it appears that Sotheby’s attempted to renegotiate Porter’s CNC with Christie’s by offering to waive the CNC of a former Sotheby’s employee who planned to join Christie’s. The New York Times reported in February 2016 that Sotheby’s offered to release Guillaume Cerutti, former Sotheby’s deputy chairman in Europe and chief executive in France, from a CNC if Christie’s would respond in kind and release Marc Porter from his CNC obligation before the contracted duration of the CNC. Reportedly, Christie’s declined this offer.

CNCs in the auction house world may be an attempt by top houses to avoid any semblance of collusion. In 2000, both Christie’s and Sotheby’s settled a $512,000,000 price-fixing lawsuit “amid allegations that the two auction houses had colluded on fixing the commissions paid by buyers and sellers of art.” Accordingly, strong CNCs in auction house employment contracts may serve as preventative measures to demonstrate a complete lack of collusion on the part of either house. What is more likely, however, is that the competing businesses wish to avoid client poaching and using valuable insights learned at their former place of employment in unfair business practices that may result from well-informed individuals using the information for the benefit of a new employer.

Conclusion

While there are thousands of auction houses worldwide, the number of leading international houses is much smaller and, as such, employment opportunities at top-tier houses are limited. Either due to the corporate culture or the CNCs, changing allegiances between these top houses incite great interest in both clients and the media. The widespread use of CNCs in auction house employment contracts serves to encourage institutional loyalty and decrease lateral movement between the top houses, but the question remains–who really wins when CNCs are strictly enforced in the auction house world?

Sources:

 

*About the Author: Elizabeth Weber is a lawyer living in Brooklyn, NY. Elizabeth graduated from the University of Florida Levin College of Law where she received her certificate in Intellectual Property Law and served as an active member of the Art Law Society and the Journal of Technology Law and Policy. Elizabeth is the Spring/Summer 2016 Postgraduate Fellow with the Center for Art Law.

Disclaimer: This article is for educational purposes only and is not meant to provide legal advice. Readers should not construe or rely on any comment or statement in this article as legal advice. Instead, readers should seek an attorney with any legal questions.

 

Their Eyes Are Watching Government: On Surveillance Art, the Art of Surveillance, Freedom of Information Act

By Jessica Preis*

On February 5, 2016, journalist, filmmaker, and artist Laura Poitras opened an exhibit at the Whitney Museum titled Laura Poitras: Astro Noise, which will run through May 5, 2016. The exhibit invites visitors to contemplate the link between art and security. In addition to taking up the entirety of the new Whitney building’s eighth floor Hurst Family Galleries, the exhibit seeps into museumgoers consciousness due to its immersive nature. Poitras is one of the artist-activists, such as Hasan Elahi and Jenny Holzer who are part of a political-artistic movement that relies on tools such as the Freedom of Information Act, 5 U.S.C. § 552, to paint unconventional canvases.

Who is Laura Poitras?

Poitras is well known for her documentary work on National Security Agency whistleblower Edward Snowden (who has been charged with theft of government property, unauthorized communication of national defense information, and wilful communication of classified communications intelligence information to an unauthorized person) for which she earned an Academy Award and a Pulitzer Prize. In her exhibit at the Whitney, which stands in the heart of the Meatpacking District, Poitras aims for viewers to feel like they are one with art and surveillance. Her mission is eerily accomplished through sensational pieces where visitors watch videos of prisoner interrogations in Afghanistan, read redacted government documents, and listen to Poitras detail her experiences abroad. One of the most unnerving pieces, “Bed Down Location,” allows visitors to lay on their backs in a dark room and look up at the ceiling displaying the night sky as it appears over countries in the center of the war on terror, such as Yemen, Somalia and Pakistan. Once visitors leave the room, they disturbingly discover that while they were stargazing they were being monitored by an infrared camera. Additionally, they discover their electronic devices have been tracked throughout their visit after coming across a screen that lists code references to all of the digital devices that enter and exit the floor.

The artist was inspired by the Snowden archive and the United States surveillance she experienced after visiting Baghdad to document the United States military occupation. According to Poitras, following her international stint in Baghdad, she has been detained over 50 times while crossing the United States border after 2006.  As a result of her numerous detainments, Poitras’ exhibit focuses heavily on the hundreds of redacted government documents she requested after filing a Freedom of Information Act (“FOIA” or the “Act”) lawsuit in 2015 stemming from the watchdog observation she underwent. Poitras filed suit so she could know what type of information the government had amassed about her.  

What is the Freedom of Information Act?

FOIA is a federal law passed in 1967 that allows for the public to request access to records of all federal agencies. It is considered “the law that keeps citizens in the know about their government.” Under FOIA, the federal agencies must disclose any information requested, unless it falls under one of the nine exemptions that protect personal privacy, national, security, or law enforcement matters. According to the United States Department of Justice, President Obama and the Department of Justice have called for agencies to be as open as possible in these requests. Additionally, the Office of Information Policy oversees agency compliance. Nonetheless, some argue that the stated goals of the Act do not operate in application.

According to Poitras’ attorney, David Sobel, who works for the Electronic Frontier Foundation (“the leading nonprofit organization defending civil liberties in the digital world”), typically  journalists may not rely on FOIA as an investigative tool due to long delays in responses. As reported by the Associated Press in 2014, there was “a backlog of unanswered requests” by the end of  2014 and when there was an actual response, the documents provided were heavily censored.

Moreover, Katherine Hawkins, a national security fellow at the advocate group, OpenTheGovernment.org explained the federal government greatly relies on various exemptionsto deny FOIA requests. Hawkins contended, “The very people who have the most to hide are deciding what to hide.”

Other Artists and Exhibits That Rely on FOIA

The Poitra’s work inspired, or made possible by FOIA, is but one example in an established practice of artists using political and government tools for sociocultural commentary.  In 2014, the Scottsdale Museum of Contemporary Art in Arizona opened an exhibit, “Covert Operations: Investigating the Known Unknowns” which united 13 artists including  Trevor Paglen, David Taylor, Hasan Elahi, and Jenny Holzer who, according to curator Claire C. Carter, have been trying “to make the invisible visible for the rest of us,” in the post-9/11 world. Paglen displayed Xeroxed copies of passport pages of Six CIA operatives who abducted the radical Egyptian cleric Abu Omar in Italy and held him without trial in Egypt for four years where he was interrogated and abused. Meanwhile, Taylor used photography as a tool to show the new “infrastructure” that arose after September 11th along the southwest border in the United States. In one of his photos he captured a homeland security agent standing over a metal case, which detects the footsteps of potential Mexico intruders through the use of electronic-seismic sensors.

Some artists have found inspiration from personal experiences. For example, Elahi, a multimedia artist who specializes in technology was placed on the government’s Terrorist Watchlist database after being falsely identified as an “Arab” man who plotted an explosive attack. He responded to the “Orwellian” surveillance by initiating the “Tracking Transience” project where he has uploaded his location on the Internet for over a decade along with other personal information like receipts.

Former CIA agents have commented about the movement. Richard Post, past president of the Arizona chapter of the Association of Former Intelligence Officers poignantly stated, “The fact that we have a group of very motivated citizens that are interested in trying to make sure that the government is trying to do the right thing for all of us in a way that’s in keeping with our national traditions and heritages and freedoms … (is) very healthy.” The conceptual artist, Holzer wholeheartedly agrees with Post’s statement.

Holzer has used text-based art as a medium throughout her entire career.  In 2004 she came up with the idea to reproduce heavily redacted government reports, called Redaction Paintings, because she wanted to “see secrets.” Holzer has an interesting process, she has silkscreened documents from sources like the National Security Archive and the Torture FOIA portion of the ACLU’s website. One of her works’, Enhanced Techniques 3, is described as handmade paper where redaction is molded into the material. In her piece DODDOACID, Holzer features a document she discovered in a 205-page investigation report detailing allegations that an an American soldier committed detainee abuse. In DODDOACID, she used oil on linen to depict a blacked out American handprint of a soldier who was accused of committing crimes in Iraq.

It appears Holzer believes that through paintings, people will not only have access to these important documents but will preserve them for the future. With politics playing an important part of the daily lives,  it is not surprising that artists around the world, not only in the United States are inspired to produce politically charged art that moves viewers emotionally while educating them about covert national and international affairs. The question remains outstanding as artists are eying the actions of government agencies, government is certainly taking a hard look at the work of the artists.

Postscript: CIA Art Collection

Interestingly enough, one federal agency’s, the Central Intelligence Agency  (the “CIA”), headquarters, in Langley, VA, houses a collection of modern art pieces not open to the public. When the Oregon-based artist Joby Barron learned of the CIA art collection, having discovered  a Taryn Simon photograph, which depicts two abstract paintings in the CIA headquarters, she wanted to know more.  Why does the CIA have these pieces, if it had others, and if the works of art were available to the public? She was inspired to begin an investigatory crusade to learn more and unearthed that the CIA has a cache of 29 abstract paintings it claims to use for intelligence training purposes. She found that the CIA held secret talks with an art collector by the name of Vincent Melzac who was an American businessman, the ex-CEO of Corcoran Gallery, a proprietor of beauty schools, and a racehorse breeder. Melzac also happened to have one of the most important private collections of the Washington Color School’s works. According to Barron, the CIA and Melzac supposedly agreed to some type of loan of the works.

In her research, Barron, like the artist-activists mentioned above, relied on FOIA but this time around not to create art but to compel the agency to share information about its art collection. She described the endeavor as a “cat-and-mouse game” and she was initially denied access to a list of paintings and photographs in the CIA’s possession. By 2014, she eventually received almost 100 pages of redacted information regarding the agency’s first meeting with Melzac. In February, Barron still had not been granted access to the complete list of artworks and questioned why the CIA is so secretive about these seemingly innocuous pieces that can only be seen by agency workers and family members.

The artist wants the public to have access to these works. She stated, “These paintings are valuable, museum quality, and part of our national treasure, paid for with public funds (I assume) and, as a citizen, I was denied access to them.” She has recreated the paintings, or what she imagines the paintings to look like in ¾ scale, which was most recently displayed in the exhibit Chasing Justice at the Contemporary Jewish Art Museum in San Francisco.

Another artist who collaborated in the Chasing Justice exhibit was Arnold Mesches. According to Mesches, the FBI robbed him of over 200 works in 1956, during the height of the Cold War. Some of the works taken were his paintings of Julius and Ethel Rosenberg, a couple executed for treason and espionage in 1953 because they were accused of providing atomic blueprints to the Soviets. Mesches himself was considered a “person of interest” by the FBI and was under surveillance for 26 years. He relied on FOIA to retrieve his 760-page file from the FBI, and thereafter started to create art out of the surveillance that took place during the Red Scare and beyond. In the FBI Files, Mesches created a collage of the actual pages from the file, newspaper clippings, photographs, paintings, drawings, and handwritten texts so as to create “contemporary illuminated Manuscripts.”

In conclusion, it is important that artists and citizens in general have the ability to access materials using FOIA despite the hurdles it oftentimes presents. Significantly, Barron called FOIA an “important tool for journalists and citizens to protect and defend.” She still hopes to visit Langley and see the CIA’s paintings in person.

Selected Sources:

*About the Author: Jessica Preis is a 3L at Benjamin N. Cardozo School of Law, working with Center for Art Law through the Cardozo Art Law Field Clinic. She was a staffer on the Arts and Entertainment Law Journal and is fascinated by Art Law and Criminal Law.

Protect Your Face: Body Art and Copyright (Part II)

By Samantha Elie*

While some of us makeup challenged women consider it a feat of artistic brilliance when we achieve that perfect cat eye with our eyeliner, an individual’s makeup art is not protected under copyright law unless that cat eye is the final touch in a Cat’s stage makeup. In the landmark case Carell v. Shubert, 104 F.Supp.2d 236 (S.D.N.Y. 2000), the Southern District of New York held that the stage makeup featured in the Broadway musical Cats was protectable under copyright law. Even though the actors in the show changed, the court considered makeup to be sufficiently fixed in the same way they consider choreography (with its ever-changing dancers) to be fixed. The Cats makeup, which required up to eight layers of makeup and several hours of work each night, was found to be an original work of authorship that is fixed in a tangible medium, thereby satisfying the elements necessary for copyright protection under 17 U.S.C. § 102. Carell will

cats

One of the characters from Cats!

likely serve as an important precedent for Paramount Pictures and CBS, who filed a complaint in December 2015 claiming copyright infringement against Axanar, a Star Trek fan film. The complaint, Complaint, Paramount Pictures Co. v. Axanar Prod. Inc., No. 2:15-cv-09938-RGK-E (C.D.C.A. Dec. 29, 2015), alleges a wide variety of violations, ranging from copyright infringement of plot points to characters to cosmetic details. The complaint includes claims that Axanar infringed “Klingon’s spiky makeup and the Vulcans’ pointy ears and eyebrows.” Because each claim of infringement must be considered individually, the court should examine individual characters’ makeup separately not only from each other but also separate from the plot points and use of phrases such as “beam me up.”  According to Carell, this original makeup, fixed in countless movies and television episodes, may also receive copyright protection. It is now up to the court to determine whether Axanar infringed on these distinctive character features.

The creative use of makeup may also garner IP protection under Trademark Law. When stage makeup is distinctive enough and used to identify a source, such as the black and white geometric full face makeup of the band KISS, it may be trademarked under the Lanham Act. While copyright protects original works of authorship, trademark protects distinctive pictures, words, or symbols used by businesses to identify goods or services in commercial activity. Registering a makeup design with the Patent and Trademark Office is uncommon, with the band KISS being the first to register a makeup-related trademark and subsequently holding most of the makeup registrations according to IPelton. Initially, the USPTO denied KISS’s application. However, the band’s lawyer, Raymond E. Scott, was able to persuade the trademark office to allow protection for the band’s makeup by proving that the distinctive makeup was more recognizable than the actual band members. To accomplish this, Scott “actually had somebody sit in for Peter Criss, the drummer, and wear the same make-up and nobody knew” the difference.

While extremely unique and time/labor intensive stage makeup may be protected by both copyright and trademark law, everyday makeup cannot be a source identifier protected by trademark law and lacks sufficient originality for copyright law. Everyday makeup may even be considered scènes à faire — an element of a creative work that is not protected under copyright law because it is customary to the genre (for example, a spy movie is expected to contain secret gadgets hidden in watches). So where on the spectrum from everyday makeup to the unique character makeup does the blurry line of copyright protection lie? Like everyday makeup, high fashion or ‘special day’ makeup — i.e. wedding, prom, red carpet, or any time a limo is involved — will not receive copyright protection. While it is customary for wedding or fashion photographers to credit makeup artists in their portfolios or magazines, it is unnecessary in the eyes of the law. The photographer retains full copyright of the finished photograph and the makeup artist has no legal recourse nor inherent right to use the photograph in their own portfolio. One way to avoid any confusion is for makeup artists to have a contract with the photographer setting out what is expected of both parties. Expectations may include the specific rights of each party, who will be credited for what, and where and how each party will receive credit.

The most recent question to arise in the realm of makeup art is whether a makeup artist can copy an avant garde artist’s dramatic facial implants without plagiarizing the original artist’s work. On January 6, 2016, c

gaga-copy

Still from “Born This Way

ontemporary French artist Orlan requested subpoenas in Manhattan federal court intending to depose the creative team, including makeup artist Billy Brasfield, behind Lady Gaga’s video for “Born This Way.” The 2011 “Born This Way” video features Lady Gaga dancing around sporting what the media called “bizarre flesh-colored facial horns” accentuating her cheekbones and forehead. While Gaga’s face in the video seemed shocking to the American media, those in the French art scene familiar with Orlan saw the video and body modification as reminiscent of Orlan’s “Carnal Art” from a quarter century before. From 1990 to 1995, the French artist underwent nine plastic surgeries, altering her face and body with implants and documenting the process. Additionally, at one point during Gaga’s video, her head is placed on Plexiglas surrounded by equally made up plastic decapitated heads, an apparent  nod (or ripoff) of Orlan’s 1996 work “Woman With Head.” Orlan and her team waited two years to bring the plagiarism suit against Gaga and her creative team for $31.7 million, originally filing suit in 2013 in Paris. Now, after almost three additional years, Orlan transferred the case to New York.

With so many potentially infringing images in Lady Gaga’s video, it is unclear whether Gaga’s prosthetic makeup will be held as infringing upon Orlan’s plastic surgeries or whether that issue will ever even come to a head. Even though Carell held that makeup is protectable under copyright law, the landscape of makeup art and copyright law is still relatively undeveloped. If cases such as Orlan and  Axanar proceed to trial, they could help brighten the line and provide guidance in the future for the legal protection of makeup art.

Selected Sources:

*About the Author: Samantha Elie (J.D Candidate 2017) is a legal intern with Center for Art Law and a student at the Benjamin N. Cardozo School of Law. She may be reached at selie@law.cardozo.yu.edu.

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

Suing Cargo Largo, Pak Mail and UPS in Florida for Art Theft

By Elizabeth Weber, Esq.*

The Supreme Court of Florida recently reinstated an art theft lawsuit between artist Ivana Vidovic Mlinar (Vidovic) and three defendants – the United Parcel Service Co. (UPS); Pak Mail, a South Florida packing store and UPS shipping service provider; and Cargo Largo, UPS’s lost goods contractor. Mlinar v. United Parcel Service Co. et al., No. SC14-54 (Fla. 2016). The suit alleges that these parties stole Vidovic’s work, profited from the theft of her paintings, used her name or likeness without Vidovic’s authorization, and, finally, that the defendants violated Florida’s Deceptive and Unfair Trade Practices Act.

The events leading to the case took place more than ten years ago. In 2005, Vidovic’s husband shipped two of her oil paintings, Advice and The Messenger, via UPS, using services provided by Pak Mail without purchasing shipping insurance. The paintings’ final destination was the Mario Novak Gallery in New York City where Vidovic had planned to exhibit and offer her work for sale. According to an Associated Press article, Vidovic viewed the New York City exhibition “as a major opportunity to advance her career.”

After shipping the paintings to Mario Novak, proprietor of the Mario Novak Gallery, Vidovic and her husband traveled to New York City for her exhibition on the date her paintings were scheduled to arrive at Novak’s home. When Novak’s fiancé received the shipping tube that should have contained the paintings, she discovered the tube had been cut open and emptied. Vidovic, her husband, Novak, and Novak’s fiancé then found and questioned the two UPS drivers who had delivered the empty tube. The UPS drivers stated that they delivered the package in the condition in which they found it, noting that the tube had already been cut open when they received it for delivery.

Vidovic immediately contacted UPS, and the company indicated that it could not assist her in any way until she filed a missing item report with Pak Mail. Two days later, the Vidovics returned home to Florida and filed a missing item report with Roly Ramos, proprietor of the Pak Mail store from which Vidovic’s husband shipped the artist’s paintings. The Vidovics advised both UPS and Pak Mail that the two paintings at issue were labeled on the back with Vidovic’s name and address. Eight months later, Ramos contacted Vidovic and stated that she was eligible for a $100 Pak Mail credit – even though the artist valued her paintings at approximately $30,000.

Then, in 2007, a Missouri-based man named Aaron Anderson contacted Vidovic to inform her that he purchased one of her paintings from Cargo Largo for $1,000.00. It is worth noting that any lost UPS goods are transferred to Cargo Largo and subsequently auctioned for profit by Cargo Largo. Vidovic learned from Anderson that he acquired Advice at a Cargo Largo auction where the Cargo Largo auctioneer informed prospective buyers that the painting was an original Vidovic that had come to Cargo Largo as a UPS lost item. Vidovic asked Anderson whether he had purchased her other missing painting, The Messenger, to which he replied that the second painting had been offered for sale in the same auction lot but he had not purchased the piece. Vidovic asked Anderson how he had found her contact information, and he replied that he had searched for her name via Google as it appeared on the back of the painting. Anderson then offered to sell Advice back to Vidovic, which she declined. Anderson subsequently listed the painting for sale on eBay and included details of his conversation with Vidovic on the listing, going so far as to offer to introduce the future buyer of Advice to Vidovic.

Over the following weeks, Anderson continued to contact Vidovic. In that time frame, Anderson found whoever initially bought The Messenger at the Cargo Largo auction and Anderson purchased the piece. He then created three separate sale listings on Craigslist: one listing for Advice, another for The Messenger, and a third listing that offered both paintings for sale in exchange for a late model Mercedes-Benz automobile.

Vidovic subsequently filed suit against UPS, Cargo Largo, Pak Mail, and Aaron Anderson. The Associated Press noted that Anderson returned Vidovic’s paintings to her in return for being dropped from the lawsuit. UPS countered with a federal preemption claim, alleging that lawsuits involving lost goods in interstate shipping must be tried in a federal court. Under UPS’s legal theory, the two-year statute of limitations had expired on the lawsuit, which precluded Vidovic’s suit.

The Florida circuit court and district court both held in favor of UPS. However, on March 3, 2016, the Florida Supreme Court reinstated Vidovic’s lawsuit because UPS’s allegedly criminal behavior did not relate to the parcel service’s contractual obligation to transport goods and, thus, was not preempted as claimed by UPS. Mlinar v. United Parcel Service Inc. et al., No. SC14-54 (Fla. 2016).

Case No. SC14-54 in the Supreme Court of Florida was reinstated and remanded to the lower court for further proceedings.

Sources:

*About the Author: Elizabeth Weber is a lawyer living in Brooklyn, NY.  She graduated from the University of Florida Levin College of Law where she received her certificate in Intellectual Property Law and served as an active member of the Art Law Society and the Journal of Technology Law and Policy. She is the Spring 2016 Postgraduate Fellow with Center for Art Law.

Disclaimer: This article is for educational purposes only and is not meant to provide legal advice. Readers should not construe or rely on any comment or statement in this article as legal advice. Instead, readers should seek an attorney.