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

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.

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