It Takes Two to Tango: The Importance of Artist-Gallery Contracts

By Scotti Hill*

tango-108483_1280

Creative Commons.

Of course galleries are venues of intellectual engagement and social activity, but it can be easy to forget that they also act as hubs for commercial exchange. The same mechanisms that govern relationships between blue-chip artists and mega-galleries ought to be in place to protect emerging artists and pop-up galleries as well. Beneath the veneer of originality and artistic merit lie monetarily-driven representation agreements and consignment contracts. The status quo is driven by mutual interest: galleries need artists to create their inventory so their clients have something to buy, and artists need galleries for their infrastructure and access to art buyers. By creating a roadmap that enables both parties to navigate their working relationships, contracts are at once practical and imperative. So, given the importance of a well-drafted and carefully negotiated contract in almost all areas of commerce, why do artists and galleries often fail to formalize the nature of their relationships in contractual form?

On July 19, 2016, Center for Art Law hosted an art law mixer entitled “Good Fences Make Good Contracts” to explore the question of contracts between artists and galleries. As a follow up, this article examines the intricacies of standard representation and consignment agreements, while also delving into the legal basis for such contracts–namely the Uniform Commercial Code Sect. 9-102 and the New York Arts and Cultural Affairs Law §12.01, Artist and Merchant Relationships. To illustrate benefits of having carefully crafted contracts between artists and galleries, some high-profile relationships, such as the representation and the rumored split between Richard Prince and the Gagosian Gallery highlight select  issues that may arise in an artist-gallery relationship.

Introduction to the Standard Artist-Gallery Contract

Screen Shot 2016-08-15 at 1.04.59 PMWhen entering into a commercial relationship, an artist or gallery may choose to draft a standard representation agreement whereby the gallery agrees to work as an agent on the artist’s behalf. The scope of this agency is negotiated by the parties, as some galleries hope to serve as an artist’s exclusive agent in a geographic area (New York City, for example), while others agree to serve as agent for one specific medium or collection the artist produces. Such agreements set provisions for matters like how revenue is shared after a sale, whether the gallery receives commissions on work sold from the artist’s studio, and the duration and scope of consignment. The following items are also commonly included in artist-gallery contracts:

  • Duration of contract including renewal and termination clauses;
  • Commission structure, terms of payment and other accounting procedures;
  • Transportation procedures;
  • Gallery promotion, marketing and copyright;
  • Coverage and provisions of insurance policies.

After establishing representation with a gallery, artists then consign their artwork to them for safekeeping with the expectation the gallery will sell their inventory. By definition, consignment is the act of assigning the property of one party (consigner, be it an artist or a collector) to that of another (consignee, here a gallery), for sale under contract. As part of the larger representation contract, a consignment agreement should list all the works given to a gallery by the consignor, with an authority to sell a specified group of the artist’s work and providing an indexical record of works in the gallery’s possession.

Uniform Commercial Code (UCC) Sect. 9-102, and New York Arts and Cultural Affair Law §12.01, Artist and Merchant Relationships

While the Uniform Commercial Code is the overarching body of laws concerning the sale of goods and commercial transactions federally, each state has adopted its own commercial code. UCC Section 9-102 sets guidelines for parties engaging in commerce regardless of the existence of a written contract. As it relates to the consignment relationship between artist and gallery, the UCC dictates important provisions that have been upheld over time by case law, namely the criteria and value of goods classified under ‘consignment’ and consignor’s rights in the event of bankruptcy. See Jacobs v. Kraken Inv. Ltd., (In re Salander-O’Reilly Galleries, LLC), 506 B.R. 600 (Bankr. S.D.N.Y. 2014)

In addition to the UCC, thirty-one states have adopted statutes to address the specific circumstances governing art transactions. In New York, for example, the New York Arts and Cultural Affairs Law (NYACAL), Article 12, provides a governing structure for interpreting contracts between artists and galleries. On November 6, 2012, New York’s consignment law was updated to include additional protections for artists by imposing stricter measures on galleries and dealers as consignors. The updated NYACAL addresses three fundamental weaknesses in earlier consignment law: requiring dealers and galleries to place sale funds in a protected trust, awarding attorneys fees for successful petitioners and requiring that critical sections of the consignment agreement be memorialized in writing. The 2012 amendment directly addresses the UCC’s problematic rendering of consigned artwork eligible for seizure by creditors, which is perhaps one of the UCC’s most controversial points.

Before the 2012 revision to the law, creditors could legally seize artworks in a consigner’s possession in order to fulfill unpaid debts. Although galleries do not own artworks on consignment, the creditor exists as a third party outside of, and therefore not bound by, the terms of a contract forged between the artist and gallery. The lack of solid legal remedies for consignors is what has propelled many states to revise their laws to deal specifically with the consignment of art, while in New York, the mammoth Salander-O’Reilly Galleries lawsuit became a catalyst for the amendment.

As such, an important provision exists in many amended state laws: that the gallery be rendered trustees to the artist’s property, which necessitates they hold revenue from the sale of an artwork in a special trust–apart from other gallery funds–that will be paid in full to the artist at an agreed upon time. This amendment works to 1) prevent creditors from seizing consigned art because the value of such works is protected in a trust, and 2) protect trust funds from being improperly used by the galleries to fulfill other financial obligations.

Indeed both parties may take advantage of vague contractual terms or actively work against the creation of a contract. Amended laws aim to prevent this by adding specific fiduciary responsibilities for both parties. Ultimately, if the artist-gallery partnership exists in a state without a comprehensive consignment statute, the parties can, and should, provide through contract the provisions missing from state law.

Richard Prince and Gagosian Gallery Split

After more than a decade and a string of highly successful exhibitions together, news broke in June 2016 that Richard Prince and Gagosian Gallery were going their separate ways. Neither the  veracity of the news nor the details of the alleged split are known, but if true may be explained by the mounting costs from legal battles involving the pair in recent years, which implicate and name Larry Gagosian and his gallery as a contributory infringer.  See Graham v. Richard Prince, Gagosian Gallery, Inc., and Lawrence Gagosian, Cariou v. Prince, Gagosian Gallery, Inc. and Lawrence Gagosian, and Dennis Morris v. Richard Prince, Gagosian Gallery, Inc. and Does 1 through 10 inclusive.

As part of his famous appropriation work, Prince takes the copyright-protected work of other creators and repurposes it in new contexts. While critics and collectors have repeatedly lauded this process, photographers whose work has been used without permission have taken a different approach. From 2014-2016, three copyright infringement lawsuits were filed against Prince by photographers Patrick Cariou, Donald Graham and Dennis Morris. In Cariou v. Prince, 714 F.3d 694 (2nd Cir. 2013), the Second Circuit Court of Appeals held that Prince did not infringe the copyright of 25 of the 30 images he appropriated from Patrick Cariou’s collection of photographs under the fair use exception of copyright law. For his use of the remaining five images in the collection, Prince settled out of court. The infringement cases brought by Graham and Morris are ongoing.

As agents working on the artist’s behalf, galleries accompany artists through creative peaks and declines. While much is made about how important contracts are for artists, galleries are wise to incorporate a termination clause in the contract in order to guard themselves from potential problems that may arise in the course of the relationship. A well-drafted termination clause, for example, is helpful in providing a protocol for the  manner in which the parties can terminate their professional relationship; a termination clause affords the party on the receiving end of the “breakup” adequate time to prepare for the transition. This is particularly important in instances where the gallery has crafted an exhibition or otherwise made plans with specific artworks. A typical clause of this kind would require the party initiating the split to give notice of anywhere from one to three months to the other party.

We do not know if Prince had a contract with Gagosian, but at the very least, it is likely the two agreed upon such critical provisions as payment and consignment of inventory. Despite news of the split earlier this summer, Prince is still featured on Gagosian’s website, which may indicate the two have yet to part ways. And even then, the separation may only be temporary.  After all, artist Damien Hirst reunited with the Gagosian Gallery for 2016’s Frieze New York following a three year split.

Conclusion

Although many states have amended their consignment laws, still other states have yet to follow suit. In areas of the nation where art represents a decidedly small segment of the larger economy, less incentive exists to add in the necessary protections that have been greatly appreciated in large art markets. On a practical level, however, artists can protect themselves by being vocal about their desire for a consignment contract. Contracts create a roadmap for the artist-gallery relationship and can offer clarity  if/when any unforeseen grey areas arise in the course of doing business together. When entering into a business relationship with a gallery, artists are wise to seek out feedback from their peers about the gallery’s reputation and its willingness to negotiate mutually beneficial terms at the outset. Various resources exist online, most important of which are copies of the standard representation and consignment agreements that can serve as a starting point for both parties. Ultimately, if an artist is faced with unique circumstances relating to their practice or needs, they may wish to seek legal representation before, and oftentimes during, their formal acceptance of a gallery’s offer of representation.

* * *

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Photo by Luis Nieto Dickens | @vla_newyork

On July 19, 2016, Center for Art Law (the “Center”) hosted “Good Fences Make Good Neighbors,” a Summer Art Law Mixer made possible with support from the New York Volunteer Lawyers for the Arts. The event focused on contracts between artists and galleries and how attorneys negotiate on behalf of their clients. Moderated by the Founding Director of the Center, Irina Tarsis, the panel featured three speakers, all attorneys specializing in art law. Dean Nicyper, a litigator with Withers Worldwide, and involved with revising the NYACAL law, provided a general overview of the legal considerations of artist-gallery contracts, Amelia Brankov of Frankfurt Kurnit Klein & Selz, spoke about the ways in which artists can advocate on their own behalf in forging contracts with galleries and Katherine Wilson-Milne of Schindler Cohen & Hochman, commented on what considerations galleries have when drafting contracts with artists. Attendees, including practicing attorneys, students and artists, asked questions ranging from the appropriate etiquette of negotiating such contracts to how to best situate oneself to prevent and later reconcile potential legal issues that arise from this union. One main take-away from the evening was that that clear terms of a consignment agreement between artists and dealers make for good symbiotic relations between the two key players in the art market.

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 legal 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.

Alternative Alternatives: ALT2 Conference Review

By Jessica M. Curley

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

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

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

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

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

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

The ALT2 Conferences are by invitation only.

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

Whois Gurlitt.info?

by Irina Tarsis, Esq.

2014-02-23

Collage: Gurlitt’s Munich apartment; portrait; Salzburg house; door plaque.

You know you are in need of a reputation management when the entire world knows your name and your address and nobody is thinking of sending you greeting cards. Also, reputation management might be a good idea when 1) your father was an art dealer connected to the Nazis, 2) you are caught hoarding  hundreds of valuable artworks of questionable provenance, and 3) you may or may not have been hiding Nazi-era looted art as well as avoiding paying income taxes.

Regardless of whether the Monuments Men-mania is dying down or not, Cornelius Gurlitt saga continues to unfold. With the German government contemplating changing its statute of limitations laws to allow for the recovery of looted art, and the international community is antsy to jump into the game of reviewing Gurlitt’s trove. Countless headlines, tweets and posts have embarrassed the Bavarian authorities and prompted the creation of a special international task force to review provenance of paintings and works on paper taken from Gurlitt’s apartment in Munich in 2012 and from his house in Salzburg in February 2014.

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Gurlitt.info website.

Initially taciturn and reticent to speak in his own defense, Gurlitt had made asked for his art back, alleging that he did nothing wrong and wondered why he had been separated from his property. Since then the tone has evolved, and now there is a bilingual website dedicated to explaining Gurlitt’s position and soliciting claims for works that he originally had no plans to relinquish. The website went live on 18 February 2014 — see: http://www.gurlitt.info. On the homepage, there is an image of a gentile and approachable man, not in his early 80s – not Gurlitt – used to epitomize him and invites website visitors to engage in “[d]iscussions about the Gurlitt case.”

The website names four individuals working for Gurlitt: Dr. Hannes Hartung (Private Law)Prof. Dr. Tido Park (Criminal)Derek Setting (Criminal)Christoph Edel (maintainer)  as well as Stephen Holziger of Holziger Associates (the spokesperson for Gulritt, who registered the Gurlitt.info domain name). According to Holzinger, the Gurlitt.info website, “reiterates our willingness to engage in a dialog with both the general public and any claimants.”  As Holzinger’s own website states, the services his ‘highly specialized communications consulting form’ provides include development and implementation of “purposeful communication and reputation management strategies for entrepreneurs, wealthy families, executive and advisory board members, corporations, SMEs, investors, institutions and associations in crisis situations, in case of disputes and during civil and criminal court proceedings,” otherwise, a public relations company for the wealthy with big problems. Perhaps the recent revelation of the Salzburg stash was a public relations move prompted by Holzinger in an effort to build up goodwill and to preemptively ward off another wave of press coverage. Indeed, it was Holzinger, who revealed on 11 February 2014, “that Mr Gurlitt has more works at his house in Salzburg, Austria, on top of the 1,400 pieces found at his Munich home in 2012.” Just imagine the firestorm, had the news of the Salzburg stash been scooped by the media instead…

Gurlitt.info states that only four families have come forward so far to claim works in the Gurlitt trove and that at most, only 3% of the entire collection may constitute Nazi-era looted art, the rest being rightfully owned by Gurlitt. As the German authorities continue to make heads and tails of the story, provenance researchers must be able access to the collection in order to assist in the investigation. It is more probable than not that more families will step forward and offer proof of ownership in other works taken from Gurlitt.

In the meantime, at least according to the Gurlitt.info:

“the Gurlitt case is by no means unique. Nazi plunder in German museums has long been known to be a problem. And there is definitely still a lot of looted art in private and public collections. Quantitatively speaking private and public collections may well contain considerably more instances of suspected looted art than in the case of Cornelius Gurlitt.”

Sources: Gurlitt.info; Holzinger Associates; ArtInfo; The Independent;

About the Author: Irina Tarsis, Esq. is the Founder of Center for Art Law; in addition to provenance research and teaching, she focuses her practice on business and art law.  She may be reached at itsartlaw@gmail.com

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

Fall of the Italian Empire: Protecting Italian Art and Cultural Heritage with a Smaller Budget

By Nora Choueiri

When people think of Italy, they think of Leonardo da Vinci and Michelangelo, the country with the dozens of UNESCO heritage sites (49 at last count), and a nation with very strict art and cultural heritage laws. One does not generally think of art and cultural heritage sites falling apart because of lack of funding. But that has become the harsh reality in a country suffering from the European economic crisis. With the current recession, the Italian government has significantly cut its cultural budget in order to fight down Italy’s $2.5 trillion (yes, with a ‘T’) public debt. The heavy financial burden has left the country without the funds necessary to restore, let alone maintain, its national heritage. Even more traditional forms of fundraising, such as through ticket sales, are not enough to keep up with the demand for restoration and preservation. As a result, Italy has had to come up with other solutions.Screen shot 2014-02-10 at 11.27.26 PM

One unique and very contemporary solution to the problem: use social media and let the people decide.  Under a program called “L’Arte Aiuta l’Arte” or “Art Helping Art,” the Italian government selected eight works of art that it deemed ‘important’ to Italy’s cultural heritage and in need of restoration.  Using Facebook as a tool, the government posted pictures of the pieces online and asked its citizens to vote to determine which one of the eight should be restored first. The painting titled “Madonna con il Bambino/Madonna and child” by Pietro Perugino emerged as the winner, with the government promising to restore the remaining seven paintings in the future.

Even architectural bastions like Italy’s iconic Colosseum are not immune from the scarcity of funding, and private funding is one of the other solutions that has surfaced to fill the void left by the government. The Colosseum had been in need of restoration for years—chunks of marble had literally been falling off the structure— when work finally began in December 2013.  However it is not the Italian government footing the $33 million bill, but rather Diego Della Valle, CEO and founder of the Italian luxury fashion brand Tod’s.  The Colosseum is far from the only important Italian site in need of restoration, and many others throughout Italy are suffering from lack of funding, including the ancient city of Pompeii, where it is increasingly commonplace for beams and walls of historical buildings to collapse.

The Italian government’s financial woes have led them through emergency decree to sell off around 350 properties that include historic buildings in Rome, Milan and Venice. Included among the properties is Orsini Castle, a medieval fort built for Pope Nicholas III in the thirteenth century (it could be yours for a cool 15 million euros!). This raises the question of how, despite Italy’s rigorous cultural heritage laws, these properties could legally be sold to private owners?

The question is especially pertinent when considering the recent case of contemporary Italian artist Francesco Vezzoli who found himself in a great deal of legal trouble when he tried to export a dilapidated and deconsecrated old Italian church as part of an art exhibit at MOMA PS1, to be titled “The Church of Vezzoli.” Vezzoli had contracted to buy nineteenth century church ruins from the owner for around $100,000 after he found the roofless structure for sale online in the southern Italian town of Montegiordano.

The church was to be reconstructed in the courtyard of the MOMA’s PS1 exhibition space in Queens and repurposed to house a series of Vezzoli’s video artworks as the third and final phase of the artist’s international retrospective called “The Trinity.” However as the church was being dismantled, a passerby complained to the Ministry of Culture, effectively stopping the dismantling and export of the church. Vezzoli then found himself being investigated for criminal conduct, with prosecutors examining whether to charge him with trying to export items of artistic and cultural value without the proper authorization, a serious crime in Italy that carries a fine or jail sentence of up to four years.

Vezzoli, represented by Jacobacci Associates attorney Massimo Sterpi, alleges he acquired the church with the blessing of the town’s mayor, and that in an examination of the estate in 1988, the regional superintendent had not found the church to have any cultural value as a monument. Further, Vezzoli contends that the roofless church was falling downhill, and that “[w]e almost felt we were doing some good” by re-erecting and repurposing the church at MOMA PS1. No matter the outcome of the investigation, it is too late for the MOMA PS1 exhibit, which had to be canceled. Though Vezzoli’s project was certainly unconventional (not only for national heritage reasons but religious ones as well), one cannot help but ask what would’ve been better, leaving the forgotten structure in its state of decay until it almost inevitably collapsed or allowing a renowned albeit provocative Italian artist tour it in some of the most notorious museums in the world?

It is undeniable that today Italy is suffering from a lack of funds, and neither government funding nor private donors are able to keep up with demands of restoring and preserving Italy’s rich art and cultural heritage. Yet despite the budget crunch, Italy still appears to be monitoring the international trafficking of its cultural heritage. Most recently, Italy demanded the immediate return of about 700 ancient objects, ranging from jewelry to sculptures that were part of the private collection of now bankrupt British antiquities dealer Robin Symes. The Italian government believes that these items were taken from Italy illegally. The accounting firm BDO was planning on selling off Symes’s collection in order to pay taxes owed by Robin Symes Ltd., but Italy has warned that if it does not receive detailed information about the status of each of the 700 items, that it may sue BDO in the United Kingdom under the Dealing in Cultural Offenses Act. Though the importance of a nation monitoring the illegal trade of its antiquities cannot be denied, one cannot help but wonder how much a potential international lawsuit would cost the already cash-strapped Italian government, and given the examples of “L’Arte Aiuta l’Arte,” the Colosseum, and Pompeii, whether Italy would even have the funds necessary to ensure the antiquities were properly cared for were they to eventually acquire them.

About the Author: Nora Choueiri, is a third year law student at Fordham University School of Law interested in art, cultural heritage, IP and international law, and is currently a legal intern at the Samuelson-Glushko Intellectual Property and Information Law Clinic. She may be reached at nchoueiri29@gmail.com.

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

Vancouver Art Dealer Sues Andy Warhol Foundation Over Sale of Wayne Gretzky Polaroids

On May 31, Frans Wynans Fine Art, a Vancouver art dealer and gallery, filed a complaint against the Andy Warhol Foundation for the Visual Arts in British Columbia Supreme Court for selling Polaroid photographs taken by Warhol of hockey star Wayne Gretzky in 1983. Wynans claims that in 1983, he signed a deal with Gretzky’s company to commission Andy Warhol to create six paintings of the famed hockey player. The complaint alleges that Warhol took an unknown number of Polaroids of Gretzky in a three-hour photo shoot that took place in September, 1983. Wynans further claims he paid Gretzky’s company $50,000, in addition to royalty payments, to license the artwork and also paid Warhol $175,000 to create it. The deal granted copyright to Warhol, but stated that both Wynans and Warhol needed Gretzky’s permission to “reproduce, restrike, utilize, or otherwise exploit the Art.” Wynans also claims that the agreement gave him the exclusive right to sell the works. After Warhol died in 1987, his works, including the Gretzky Polaroids, were transferred to the Warhol Foundation.

In November, 2012, Frans Wynans stated that he heard about a Christie’s auction that featured “four unique Polaroid prints” of Gretzky, which were sold for $9,000. Wynans claims that the Warhol Foundation breached the 1983 deal by directly competing with Wynans and refusing to deliver the photos before the were sold off.

It appears that Wynans wants his piece of the Warhol pie. After the artist’s death in 1987, the six Gretzky original paintings, which sold for $35,000, were suddenly worth at least $100,000 each and the silkscreen prints, which originally sold for $2,000, shot up $6,000. The complaint states that, “being fully occupied with the marketing and selling the Paintings and Prints, Mr. Wynans gave no thought to the Photos.” He was unaware of the continued existence of the photographs and feels he should be duly compensated.

Stay tuned for further developments as this case unfolds.

Sources: Courthouse NewsCBC

Order of Business At Auction, Red Flag or Paddle?

Steven Brooks, a collector of Old Masters, says that a painting he bought from Sotheby’s for £57,600 in 2004 (about $90,000 today) is worthless because it was once owned by the war criminal Hermann Goering, and might have been looted by the Nazis.  The painting, Allegorical Portrait of a Lady as Diana Wounded by Cupid, is by the 18th-century French artist, Louis-Michel van Loo. The Goering connection came to light in 2010, when Brooks sought to sell the painting at Christie’s. When Christie’s specialists discovered that Goering had bought the work in 1939, Christie’s refused to accept it for auction, citing concerns about being able to convey good title.

In a complaint filed against Sotheby’s in California on March 21, Brooks alleges that Sotheby’s should have researched the provenance and informed potential buyers that the work had been owned by Goering; that the Goering connection creates “a cloud on title” that renders the painting unsalable and without value; and that Sotheby’s refuses either to put it up for auction or refund his money.

The case is unusual in many respects.  First, it is standard practice for auction catalogues to contain Conditions of Sale, Terms of Guarantee, and Glossaries of Terms.  A typical* Sotheby’s catalogue from 2001 states, under Conditions of Sale:
The following Conditions of Sale and Terms of Guarantee are Sotheby’s, Inc. and the Consignor’s entire agreement with the purchaser relative to the property listed in this catalogue…

By participating in any sale, you acknowledge that you are bound by these terms and conditions.
      1.     [A]ll property is sold “AS IS” without any representations or warranties by us or the Consignor as to merchantability, fitness for a particular purpose, the correctness of the catalogue or other description of the…provenance…of any property…and no statement anywhere, whether oral or written,…shall be deemed such a warranty, representation or assumption of liability.

Even in the Opaque Art World, Taxes are Certain: Glafira Rosales/Gonzalez Indicted for Income Tax Evasion

Knoedler Gallery was a reputable art gallery, in existence for over 150 years. When it closed in 2011, accusations that it sold forgeries were just starting to mount. Art collectors are still steaming over purchases of suspect artworks. In fact, another case, according to the New York Times Reporter Patricia Cohen this one is No.6, has been filed earlier this month by the former ambassador to Romania, Nicholas F. Taubman who bought a fake Clyfford Still from the now defunct gallery in 2005. Like dozens of other suspect works, this Clyfford Still came to Knoedler from the stock of the Long Island art dealer Glafira Rosales, a.k.a. Glafira Gonzales (“Rosales”).

Naturalized citizen of the United States, Rosales sold dozens of art works attributed to important 20th century artists, including Mark Rothko, Robert Motherwell, and Jackson Pollock on behalf of fictitious clients. As a part of her elaborate scheme, Rosales lead the Knoedler staff to believe that all of the works she offered were owned and consigned to her by others. Between 2006 and 2008, the proceeds of Rosales’ sales exceeded $14 million. Now, the charges brought against her allege that she was “dealing in fake artworks for fake clients;” however, this is not the thrust of the accusations. In a complaint dated May 20, 2013, Rosales is accused of evading taxes owed on the proceeds from the sale of these fake works. It is an Al Capone story all over again, minus the murder and prostitution.

For years, Rosales omitted or significantly understated her gross receipts; she also failed to comply with mandatory IRS filing requirements. Specifically, Rosales under-reported her income, by omitting at least $12.5 million from her returns between 2006 and 2008. Also, between 2007 and 2011, she failed to report to the IRS the existence and worth of her foreign bank accounts, a mandatory requirement for U.S. taxpayers with foreign holdings in excess of $10,000 during any given year. The IRS investigators were able to trace money transfers to accounts connected to Rosales located in La Coruna and Lugo, Spain.

The eight counts of violations brought against Rosales, if combined (three false tax returns and five years of willful failure to file disclosures), carry a maximum penalty of 34 years in prison and a maximum fine of $1,550,000.

If Glafira Rosales qualifies as the Trojan Horse of the Knoedler Gallery, the Achilles hill of that horse may be her income tax forms.

Source: Sealed Complaint; The New York Times.

Update: Helly Nahmad Keeps a Low Profile In the Weeks Following the Indictments

What effect does a scandal involving an international money-laundering and gambling scheme stretching across the globe have on a high-profile Manhattan gallery? Helly Nahmad has been quietly minimizing operations at the Helly Nahmad Gallery, following the recent raid on his gallery and indictment (reported here last month). On April 16, U.S. Attorney Preet Bharara brought charges against Nahmad and 34 other people, alleging that they participated in running a high stakes gambling ring that catered to billionaires and celebrities.

Earlier this month, Benjamin Brafman, co-counsel for the gallery, confirmed that Nahmad had canceled a major exhibition to be held at the gallery entitled “Monet Richter.” The show received loans from museums in the United States and Europe and was supposed to run from May 10-June 10. “Monet Richter” was to include paintings by Gerhard Richter from the collections of Hirshhorn Museum and Sculpture Garden in Washington, D.C., Vienna’s Albertina Museum, and the Frider Burda Museum in Baden-Baden. The Frieder Burda was to lend “Abstract Painting, Lake” (1997), the Hirshhorn was to lend “Sancturary” (1998), and the Albertina was to lend “Abstract Painting” (1986) and “Summer Day” (1999). Representatives of these museums stated that the show was canceled a short time after the indictments were announced.

In addition to the cancelation, Nahmad will also not attend Art Basel in Switzerland set to occur from June 13-16. As part of his bail, Nahmad surrendered his U.S., Italian, and Brazilian passports and his travel is restricted to the southern and eastern districts of New York. However, the gallery itself is still expected to participate with Art Basel, a representative revealed.

Maxwell Anderson, director of the Dallas Museum of Art and former president of the Association of Art Museum Directors (AAMD) explained that exhibitions like “Monet Richter” are “branding exercises” and typically do not involve sales. When museums lend art to galleries for such exhibits, they require the shows to be educational rather than commercial in nature. However, such shows increase the prestige of galleries, as they attract dealers, collectors, museums professionals, and other art world elite. In particular, Nahmad intended the exhibit to coincide with the Christie’s and Sotheby’s mid-May Modern, Impressionist, and Contemporary Art sales–some of the most lucrative art sales in the world.

Anderson added that as long as the investigation is unfolding, the Helly Nahmad Gallery will have a hard time getting a museum to lend it art. He told Bloomberg News, “I can’t imagine a museum would be prepared to lend to a gallery that’s not in good standing, and the indictment of the owner would qualify as not being in good standing.” The Helly Nahmad Gallery remains open with a small exhibition entitled “Impressionist & Modern Masters,” including works by Rothko, Theibaud, and Calder.

Brafman concedes that any museum director is entitled to not to deal with the gallery due to the alleged involvement of its owner in the ongoing investigation, but “we note however, that the gallery has never been charged with any criminal violation.”

Source: Bloomberg News

Five Art Market Lessons from Recent Case Law

By Daniel S. Kokhba, Esq.

A growing number of investors have turned their attention to the art market. There, they are greeted by advisors, appraisers, brokers, experts and insurers. Art collectors and art investors hop from gallery to auction house to website, and their motives are as varied as the prices and mediums of the art and the structures of the transactions. In the midst of this exhilarating and ever changing marketplace, a review of recent case law identifies five fundamental lessons to keep in mind in navigating the art world.

I.  ACA Galleries, Inc. v. Kinney Lesson: Investigate before you buy 

A real estate buyer is unlikely to close on a sale without proper investigation. Such investigation may include careful and repeated visits, professional inspections, review of board minutes and title reports, and securing title and homeowner’s insurance. By contrast, an art buyer may skip critical investigatory steps at great risk of loss. Such risk can be hedged by performing adequate due diligence, including but not limited to, independent professional inspection, review of the provenance, attorney review of the contract and securing adequate insurance. ACA Galleries, Inc. v. Kinney, 2013 WL 638835 (S.D.N.Y. 2013), ACA Galleries, Inc. (“ACA”) sued an art seller for selling a forged Milton Avery painting. The District Court granted defendant’s motion for summary judgment and dismissed the fraud claims, holding that “Kinney’s motion for summary judgment on ACA’s fraud claims must be granted because, as a matter of New York law, ACA’s reliance on any representations made by Kinney was unreasonable and thus ACA’s fraud claims fail.” Id. at *3. ACA cannot establish justifiable reliance because it had the opportunity to fully investigate the authenticity of the painting but failed to do so.” Id. at *3.

Here, the Court recognized that ACA “failed to avail itself of the opportunity to have the painting inspected by the Avery Foundation or another expert prior to purchase…  ACA is in the business of buying and selling art. Such a business must be cognizant of forgery of the works of well known artists like Avery.” Id. at *4. The Court’s reasoning would be wisely followed by all buyers in an effort to avoid both purchasing a forged work of art and finding themselves without legal recourse in such an event.

II. Craig Robins v. Zwirner. Lesson: Get it in writing

In Craig Robins v. Zwirner, 713 F.Supp.2d 367 (S.D.N.Y. 2010), plaintiff sued an art dealer claiming the dealer reneged on a promise to sell certain paintings by the artist Marlene Dumas. The Court noted “plaintiff has not come forward with any writing signed by Zwirner promising to sell paintings to Robins. Absent a writing signed by Zwirner, enforcement of the oral Gallery Agreement is barred.” Id. at 376. The lesson here is clear: if you feel strongly about that artist or her artwork, get the promise to sell in writing.

“Under New York law a contract for the sale of goods for the price of $500 or more is not enforceable without a contemporaneous writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought.” Craig Robins v. Zwirner, 713 F.Supp.2d 367, 375 (S.D.N.Y. 2010); N.Y.U.C.C §2-201(1); Hoffman v. Boone, 708 F.Supp 78, 80 (S.D.N.Y. 1989). “However, where a service component of a contract ‘predominates’ over the incidental sale of personal property, an oral agreement is barred by the Statute of Frauds only if it is incapable of being performed within one year.” Id.; N.Y. Gen. Oblig L. § 5-701. Practically, not having the transaction memorialized in a detailed and signed writing invites litigation.

III. Flaum v. Great Northern Insurance Company. Lesson: Review the policy for adequate coverage

While insurance can protect the insured against certain losses, it is imperative to review the applicable policy and ascertain if a specific risk is actually covered by it. As illustrated by the case below, one cannot equate insurance with universal protection against all losses.

In Flaum v. Great Northern Insurance Company, 28 Misc.3d 1042 (Sup. Ct., Westchester, 2010), Flaum, as an insured, brought an action against an insurer alleging breach of an insurance policy based on the Company’s failure to provide coverage for a painting that Flaum claimed was a forgery. The Court noted that “the language of the Valuable Article’s Coverage clearly and unambiguously state that ‘all risk of physical loss’ is covered under the terms of the policy. Here, however, plaintiffs did not sustain a physical loss. There is no dispute that the painting originally attributed to the famous French painter Pierre-Auguste Renoir still hangs in [plaintiff’s] primary residence in substantially the same condition as when it was purchased.  In addition there is no claim that [this painting] has been lost, damaged or destroyed”. Id. at 1045.  It just happens to be a fake.

This case clearly demonstrates that an insured should carefully review the terms of an insurance policy obtained to protect his investments, in case something believed authentic turns out to be a fake.

IV. Schoeps v. Andrew Lloyd Webber Art Foundation, Inc. Lesson: If a lawsuit is initiated, make sure the proper party brings the case

Notwithstanding, litigation may be needed due to, inter alia, tortious conduct and/or breach of contract. Before considering taking legal action, it is important to determine who is the proper party to proceed with the claim.

In Schoeps v. Andrew Lloyd Webber Art Foundation, Inc., 66 A.D.3d 137 (1st Dept. 2009) the Court affirmed an order dismissing the complaint. The court held that a beneficiary of an estate may not act on behalf of the estate, instead any such moving party has to be appointed a representative first.

While a claimant may have a beneficial interest in the claim, standing may rest with a particular person or require that this person obtains authority to proceed from the Court. Failure to consider this procedural step can lead to delay and even dismissal of valid claims.

V. Grosz v. Museum of Modern Art. Lesson: Remember about the statute of limitations – even when discussing settlement

It is imperative that if a lawsuit is inevitable, that it is filed timely. If a claim is filed outside of the applicable statute of limitations it may be dismissed with prejudice. A common misconception is that settlement discussions alone toll the statute of limitations. In fact, they do not.

To protect a valid claim from expiring, one may file a summons and complaint to preserve rights to sue which could also apply additional leverage in settlement negotiations. If the negotiations are fruitful, the litigation can be discontinued upon securing a written and signed settlement agreement.  If they are not, claimant’s rights are preserved with timely filing.

The mere existence of settlement negotiations is insufficient to equitably toll the statute of limitations. Grosz v. Museum of Modern Art, 403 Fed. Appx 575 (2nd Cir. 2010).  According to Grosz, as soon as a claim arises it may be prudent to assess what claims are viable and what statute of limitations period applies. Should a lawsuit be required, it should be timely filed to avoid dismissal on that ground.

* * *

In conclusion, this survey of recent case law confirms that good practices of navigating the art market are far from universally learned, and these lessons warrant attention. Doing so may help art collectors both before and after art law issues arise.

About the Author

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

Disclaimer

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

Dealer in Ancient Coins Indicted for Tax Fraud

This past Tuesday, April 2, U.S. Attorney Paul J. Fishman announced that a federal grand jury in Newark, New Jersey returned a three-count indictment charging a former Bergen County dealer in ancient coins with tax fraud. The dealer, Gantcho Zagorski, currently residing in Chicago, is a former resident of Hackensack and was charged with aiding and assisting in the filing of false federal income tax returns for 2006-2008. The indictment is the result of an investigation by US Immigration and Customs Enforcements’s (ICE) Homeland Security Investigations (HSI), the IRS, and the FBI.

According to the indictment, Zagorski owned and operated a business that sold ancient coins to domestic and international customers. He sold his coins primarily on eBay and worked from his residence in Hackensack, assisted by his wife and daughter. He operated the business under several different names, including Diana Coins, Paganecoins, and Diana Coins LLC. According to records, he also owned Balkan Import Auto Sales, Inc. in Venice Florida, where he has also lived. The indictment alleges that for calendar years 2006-2008, Zagorski provided his tax preparer with fraudulent information, underreporting the gross receipts and sales earned by his business at $230,000-$314,000. The indictment does not address the legality of the coins or the business practices beyond tax fraud.

Each of the three tax counts carries a maximum potential penalty of three years in prison and $250,000 fine.


A date for Zagorski’s arraignment will be scheduled after the case has been assigned to a federal district judge. The government will be represented by Assistant US Attorneys Maureen Naky of the Special Prosecutions Division and Leslie Schwartz of the Economic Crimes Unit.

Sources: ICE News ReleasesChasing AphroditeLooting Matters