In Matters of Probate: Trust but Verify

by Marine Leclinche*

Manet Chanteuse de Cafe Concert, La

Édouard Manet “La chanteuse de café concert” (1879)

When Anne Marie Rouart, the widow of Denis Rouart – a descendent of the French artist and art collector Henri Rouart – died on December 18, 1993, she left behind a tremendous collection of art. The French masters Manet, Morisot, Degas, Monet, Renoir, and de Corot were each included. Many of the works were also painted by Berthe Morisot, from whom the Rouart family is directly descended. By Rouart’s last will dated  October 7, 1992, she left the entire meubles meublants (furniture and decorative pieces) of her apartment in Neuilly-sur-seine, Paris, to her nephew, Yves Rouart. The rest of the art collection was left to the Académie des Beaux-Arts in Paris, which created a Rouart Foundation and transferred to the Marmottan Museum the principle artworks of the Rouart collection. As of today, four paintings remain untraceable.

This article strives to provide an overview of the long process that ensued to recover some of Mrs. Rouart’s long lost paintings, which involves both French and American Law. The Rouarts’ story, despite its complications and its link with fascinating characters, such as the Wildenstein family, is not unique, and serves as a good reminder for art collectors to carefully plan their estates.

The blurry aftermath of the estate of Anne-Marie Rouart

In November 1997, nearly four years following Rouart’s death, the principal artworks originating from the succession were taken to the Marmottan Museum in Paris, as per her will. Nevertheless some paintings left to Yves Rouart and to the Académie were unaccounted for. Part of the problem, according to journalists, was that only about forty artworks were on display at her Paris apartment, while many more were placed in different safes, including one at the Wildenstein Institute (a non-profit organization founded to do art research and edit catalogue raisonné and located in Paris). After Rouart’s death in 1993, the executors assembled her entire collection at her apartment to allegedly develop an inventory in situ. Once there, they apparently took down from the walls all the paintings on display. The removal of the paintings, either knowingly or not, affected the status of the paintings and the final accounting (to the detriment of Yves Rouart’s inheritance) because once the works were unaffixed from the wall they were no longer meubles meublants under article 534 of the French Civil Code. The paintings bequeathed to Yves Rouart became indistinguishable from those bequeathed to the Académie.

In 1997, Yves Rouart initiated a civil action before the Court of First Instance in Nanterre after he read the inventory and realized the actions taken by the executors. While Yves Rouart was trying to identify the artworks that were stored at the Wildenstein Institute, he realized that about forty additional art objects were missing from the accounting. He decided to also sue for theft, concealment and breach of trust in a Paris Criminal Court.

The saga of the missing Rouart art turned out even more incredible when the names of two famous art experts and members of the Académie des Beaux Arts in Paris became linked to the mystery. Guy Wildenstein, son of the art dealer Daniel Wildenstein, and Olivier Daulte, son of the Swiss art publisher François Daulte, were serving as the executors of Rouart’s estate.

In France, a testator can nominate as many executors as he or she wants to be responsible for the administration of the estate. Several forms of will are admissible under French law: a holograph (handwritten) will, a formal notarial will (testament authentique), a mystic will (when given to the notary in front of two witnesses in a closed and sealed envelope), and an international will (subject to the UNIDROIT Convention Providing a Uniform Law on the Form of an International Will, Washington DC, 1973). Under French Law, children of decedents have a natural right to inherit property from their parents by way of a forced heirship system (réserve hériditaire). The executor’s mission is unpaid except if a liberality (a legal deed made inter vivos or testamentary disposition in which a person transfer to another a good or goods belonging to his estate) is made as a gift or bequest (Rouart’s collection was mostly bequeathed to the Académie). The executor assumes contractual responsibility when he or she accepts the mission. This law of testamentary transfer is valid across France. In the United States, however, each state has specific surrogate law governing its law of probate. In New York for example, under Section 2307 of the New York Surrogate’s Court Procedure Act, executors are entitled to collect a fee ranging between 2 and 5% of the total amount of estate money that the executor receives and pays out. If there are several executors, the fee must be apportioned among them, based on the services rendered by each of them. A decedent’s will may also address the subject of bonds and augment the compensation that an executor may collect for his or her troubles.

The Swiss lead

In 1998, Yves Rouart was able to retrieve some of the missing works in Europe, however there were still a number of them unaccounted for. In April, when François Daulte (1924-1998), world renowned art historian and curator from Lausanne, Switzerland died, his heirs Olivier Daulte and Marianne Delafond (a curator at the Marmottan Museum) made an interesting discovery. They found artworks in his Swiss bank safe that they did not know about. Indeed, once the Estates Office in Lausanne published a notice in the press for potential creditors, Yves Rouart warned the Office of his suspicions concerning several artworks. The safe was then opened in the presence of a bailiff and twenty-four artworks originally from Rouart’s estate were discovered, substantiating Yves’ claims. Among them were a landscape by Corot titled Road descending from the town of Volterra, two portraits of Manet by Degas, the Cathedral of Strasburg by Eugène Delacroix, a Tahitian woman by Gauguin, six paintings by Manet, nine by Berthe Morisot, two by Renoir, one by Toulouse-Lautrec and the copy of an Italian painting. Terms of the settlement were not made public but thereafter, the criminal proceeding that Yves initiated in 1997 was dismissed and the parties withdrew before the Nanterre Court of First Instance in December, 2000.

Oddly enough, the Académie, which was bequeathed a large part of Rouart’s collection, neglected to file a complaint in France when it first discovered that some artworks were missing back in 1993. However in 1998, the Académie claimed ownership to the newly found artworks from Daulte’s Swiss vault.

Following the Daulte safe find, from 1998 until 2011, five paintings remained missing. However, old photos of Rouart’s apartment proved that they were on display before her death and thus subject to Yves claims. These included three Manets (La Chanteuse de café-concert, Le Portrait de Mme Manet mère, and Le Jardin de Bellevue); one Corot (La Bohémienne rêveuse); and one Morisot (Chaumière en Normandie). The Morisot was later found in the safe of the Wildenstein Institute.

In 2000, Yves Rouart and the Académie started negotiations. Fifteen artworks were given back to him, making him the owner of forty-eight artworks from the original transaction. Further discovered works were to belong to the Académie.

The Wildenstein twist

In 2011, Guy Wildenstein was accused of underestimating inheritance taxes after the 2001 death of his father Daniel in France. Investigators believed that a complex scheme was created shortly after Daniel Wildenstein’s death, enabling his heirs to hide arts and assets under the ownership of secretive trusts and move artworks between New York and Switzerland. Guy Wildenstein claimed that he was told “that the assets weren’t owned by the family but by independent trusts, and thus need not be disclosed to tax authorities.”

In January 2011, police investigators from the Central Office for the Fight against Trafficking in Cultural Goods (OCBC) seized thirty artworks that were reported stolen or missing by previous owners, during a search of the mysterious vault of the Wildenstein Institute in Paris. While Guy Wildenstein was in custody and interrogated by the Juge d’Instruction (Investigating Magistrate), he admitted that there was no inventory of the vault, which contained dozens of artworks that he did not own.

Yves Rouart, then represented by Serge Lewisch, filed a new criminal complaint against X. Under French law, a complaint against X enables a plaintiff to first file a complaint against an unnamed person: “X”, when the identity of the perpetrator is unknown. The claim, made before the Paris First Instance Court, was for concealment of theft, since Chaumière en Normandie by Berthe Morisot was found in the safe of the Wildenstein Institute after it had been missing for decades. An inquiry was launched to determine how the paintings ended up at the Wildenstein Institute. The aim was to nullify the 2000 transaction between the Académie and Yves Rouart because of the indirect involvement of the Académie in the concealment of the paintings by the executors and their fathers, after having benefited from Yves’ dispossession of his meubles meublants.

Under French law, the negotiations that lead to a transaction, such as an agreement with a museum, must be interpreted under article 2044 of the French Civil Code. In his complaint, Yves Rouart’s attorney argued that the transaction between his client and the Académie should have been be invalidated because of the dol from which his client was victim. A dol can either be a false representation, a lie or a fraudulent misstatement. Under former French law, lack of consent such as a dol, is subject to a five-year limitation period from the discovery of the defect. Guy Wildenstein attempted to counter-argue that if any artworks were found they should belong to the Académie and not to Yves Rouart, according to the 2000 deal. This argument was rejected by the Judge d’Instruction and Guy Wildenstein was eventually charged with abus de confiance (breach of trust) under article 314-1 of the French Criminal Code.

On May 2016, after a new search was launched by Swiss prosecutors in the context of the “Panama Papers” scandal, Swiss police officers and police investigators from the OCBC searched the Freeports of Geneva in relation to the Wildenstein lawsuits (Challenges, Oct. 20, 2016). Geneva Freeports are known for holding dozens of masterpieces that are exempted from custom duty and value-added tax, so long as they are not taken out of the Freeport. However, the artworks can still be sold and bought within the Freeport.

In this context, the search of the Geneva premises of Natural Le Coultre (Yves Bouvier, the owner of the company, had already been investigated in a lawsuit for fraud and concealment opposing him to the Russian billionaire Dimitri Rybolovlev), a worldwide artworks transportation company, lead to the discovery of several paintings, but according to the police report, none of them belonged to the Rouart family. Nevertheless, some unnamed Manets were found, and according to the French magazine Challenges, Yves Rouart declared that he was convinced that they were his aunt’s. This was because the Wildensteins owned very few Manets and almost none of them are currently in circulation. Most were owned by museums, while some belonged to private art collections. According to Paul-Albert Iweins, the lawyer of the Académie des Beaux Arts, the Académie now supports the investigations instigated by Yves Rouart and “is very interested by the discovery made in Switzerland” (Challenges, Oct. 20, 2016). The relationship between Yves and the Académie seems to have pacified over the years.

As for the criminal part of the lawsuit, on January 12, 2017, Guy Wildenstein was cleared of the charges of tax fraud and money laundering. However, the acquittal was granted on technical grounds. Olivier Géron, president of the 32nd chamber of the Paris Criminal Court, stated that “a tribunal cannot conclude on the existence of fraud without direct evidence” (Le Monde, Jan. 12, 2017). In addition, there were faults in French tax fraud legislation. Indeed, prior to 2011, there were no laws requiring the disclosure of assets held in a trust. The next day, the newly-created Parquet National Financier (PNF), headed by the Financial District Attorney and placed under the authority of Paris Attorney General, announced its intention to appeal the general acquittal of the Wildenstein heirs.

The Wildenstein trusts

The Wildenstein family created several trusts over many years. The offshore Delta Trust in the Bahamas, created in 1998 by Guy’s father, held almost 2,500 artworks valued around $1 billion before he died (NY Times, Sept. 30, 2016). The Royal Bank of Canada Trust Company (RBCTC Bahamas) was the trustee of the Delta Trust and started to reveal information to the Paris Court of Appeal (in 2016) after they discovered that $250 million of paintings owned by the trust were moved out of the US without their approval. RBCTC Bahamas claimed they reported the paintings to American tax authorities after the discovery of the move. The only role of the trust seemed to have been to sell off paintings to generate revenue for the family, especially for Guy Wildenstein, the beneficiary.

One argument made in defense of Guy Wildenstein, to explain the non disclosure of these trusts to French authorities, was that the trustees rather than the Wildensteins were the owners of the paintings. This was despite the fact that the family, as stated above, made “critical decisions about art sales and demands for distribution of money(NY Times, Sept. 30, 2016.) The French fiducie inspired by the Anglo-American concept of trust was introduced in French law in 2007. The fiducie is “a contract by which a company (the Settlor or constituant) transfers goods or rights to another person (the Trustee or fiduciaire) who holds these separate from his own property with the remit to manage the property for the benefit of one or more Beneficiaries.” The difference between the French fiducie and the common law trust is that, according to article 2012 the French Civil Code, the fiducie is expressly established by law or contract, whereas a trust is not necessarily contractual. According to article 2011 of the French Civil Code, the independent management of the trust was not respected by the Wildenstein family.

French Tax authorities are hoping to recover about $600 million in taxes in a civil lawsuit related to the family inheritance of Daniel Wildenstein (is this different from the tax case? or the same). Guy Wildenstein will also have to explain how “he came into possession of paintings seized by police at the Wildenstein Institute in Paris” (Artnet news, Jan. 12, 2017) and why this particular vault did not have any inventory, counter to their general practice of cataloging the contents and listing their owners (a second vault was found and had a complete inventory).

Conclusion

 For now, most of the Rouart mystery remains. Some of the artworks are still missing and the roles of Wildensteins and Daultes in this case are unclear. Nobody seems to know when and how the paintings were transferred in Switzerland (no export certificate was issued), or why Olivier Daulte, as the executor of Mrs. Rouart’s estate, did not contact Yves Rouart or the judge in charge of the complaint directly after the discovery of the twenty-four paintings in the safe of his father.

The art market is notoriously opaque and it seems, as demonstrated by the Rouart case, that no one is immune from falling under the spell of the wealth (economic, aesthetic or intellectual) that is contained in artworks. Regardless of the jurisdiction, when valuable art is bequeathed it is beneficial to appoint multiple independent executors and leave specific instructions not only as to what is to be done with the artworks but what are the artworks in the bequest. It is important to keep in mind that during estate proceedings, valuable property can and does go missing. Estate planning with updated lists of property, its locations, and information concerning the last appraisal and its value, are de rigueur to lower the risk of loss (accidental or purposeful).

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* About the Author: Marine Leclinche is a Spring 2017 Legal Intern with Center for Art Law. She is a LL.M candidate at Benjamin N. Cardozo School of Law. She graduated in Intellectual Property law in France (Université Paris II Panthéon-Assas, Master 2 Droit de la propriété littéraire, artistique et industrielle, Class of 2016), and now focuses on art and fashion law. She can be reached at leclinch@law.cardozo.yu.edu.

Disclaimer: This article is intended for educational purposes only. 

 

 

In the Eye of the Beholder: Appraisals of Art for Estate Tax Liability

by Emily Lanza*

Form 706 Estate Tax

Estate tax, death tax or inheritance tax? Pick one and pay up to 40% with first $5.4 mill exempt.

In February 2017, the U.S. Tax Court ruled that the estate of a deceased New York woman, Eva Franzen Kollsman, undervalued $2.4 million worth of art on the estate tax return. The assets at issue before the Tax Court were two Old Master paintings by Pieter and Jan Brueghel held by the decedent at her death. The IRS claimed before the Tax Court that the Kollsman estate underreported the values of the two Old Master paintings resulting in a $781,488 federal estate tax deficiency.

In reaching this decision, the Tax Court not only rejected but also criticized the appraisals made for the estate of the two Old Masters by George Wachter, Vice President of Sotheby’s North America and South America. The Tax Court dismissed Estate’s declaration and the valuations made by Wachter, finding that his valuations were “unreliable and unpersuasive” due to his direct conflict of interest and misconstrued analysis of the Old Master paintings. 

The opinion of the Tax Court in the Estate of Eva Franzen Kollsman v. Commissioner of Internal Revenue demonstrates the importance of having a justifiable and objective appraisal when determining the tax liability of an estate. The valuation of art is not an exact science and may change depending on the “eye of the beholder.” However, in order to determine the precise tax liability of an estate, appraisers and estate executors must adhere to Internal Revenue Service (IRS) guidelines, professional codes of ethics, and the legal requirements within the Tax Code to ensure some level of objectivity and consistency. What were the shortcomings of the appraisal conducted for the Kollsman estate and what are the lessons to be learned from this case?

Estate Tax

The federal estate tax is a tax levied against the estate of a decedent, which must be paid by the estate upon the transfer of the property. The top tax rate is statutorily set at 40%. A series of adjustments and modifications of a tax base known as the “gross estate” determines federal estate tax liability. The gross estate includes the value of all property, including real or personal property such as artwork, that the decedent owned on the date of his or her death. The value of the property included in the decedent’s gross estate is the “fair market  value” on the date of the decedent’s death. According to estate tax regulations, the “fair market value” of the property is the price at which the estate property would hypothetically change hands between a willing buyer and willing seller. In such a sale, the buyer and seller would not be compelled to buy or sell the property as such a compulsion would disproportionately raise or lower the price. Additionally, both parties would be expected to have reasonable knowledge of the relevant facts, such as the condition or history of the relevant property. The impact of subsequent events after the death of death on the fair market value depends on the particular facts of the case and whether the parties would be expected to have knowledge of the relevant facts surrounding the subsequent event. The fair market value tends to reflect the hypothetical sale price in a market in which the item is most commonly sold to the public, such as the auction market for art assets.

Next, certain allowable deductions reduce the gross estate to the taxable estate. These allowable deductions include estate administration expenses, certain debts and losses, charitable bequests, and state death taxes. Then, the tax rates are applied to the taxable estate after the total of all lifetime taxable gifts made by the decedent is added to the taxable estate. Any available credits, such as the “unified credit,” are subsequently taken to obtain the actual estate tax liability, the amount of tax paid by the estate. For estates belonging to decedents who died in 2017, they must pay tax on estates valued greater than $5.49 million, the basic exclusion amount under the unified credit for 2017 (the unified credit in 2016 was $5.45 million). The IRS adjusts the unified credit amount every year to account for inflation. The Trump administration has recently proposed to eliminate the estate tax.

Estate of Eva Franzen Kollsman v. Commissioner of Internal Revenue

As explained above, the fair market value of property held by the estate is an important factor in determining the tax liability of the estate. This was the primary issue before the Tax Court in this case. Upon her death in 2005, the decedent, Eva Franzen Kollsman, owned two 17th-century Old Master paintings at issue in this case: Village Kermesse, Dance Around the Maypole (“Maypole”) by Pieter Brueghel the Younger and Orpheus Charming the Animals (“Orpheus”) by Jan Brueghel the Elder or the Younger. Pieter Brueghel’s work was later sold by Sotheby’s for the hammer price of $2,100,000.

In September 2005, a month following the decedent’s death, the estate’s expert, George Wachter, Vice President of Sotheby’s North America and South America, valued the paintings at $500,000 for the Maypole and $100,000 for Orpheus. In reaching these values, Wachter considered the composition and subject matter of the paintings but focused much of his analysis, according to his testimony before the Tax Court, on the extreme yellow discoloration and the dirt and grime on the paintings that accumulated during years of the decedent’s smoking. Wachter’s valuation was included in the estate’s 2005 tax return. After the valuation, the paintings were cleaned by a fine art services firm, Julius Lowry Frame and Restoring Company, at the request of the estate.

 

In 2009, Maypole sold at Sotheby’s for the hammer price of $2,100,000. The executor of the estate, Jeffrey Hyland, retained Orpheus. While the estate tax return listed the fair market value of Maypole and Orpheus at $500,000 and $100,000 respectively, the IRS asserted in a notice of deficiency that the estate had underreported the value of the two paintings and the actual fair market value of Maypole was $2,100,00 and of Orpheus was $500,000, resulting in a $781,488 tax deficiency. The estate petitioned the Tax Court for a redetermination of the paintings’ fair market values.

Before the Tax Court about ten years after the initial evaluation, the estate and the IRS presented the testimony of their respective experts and their valuations of the two paintings at issue. Paul Cardile, Ph.D., an art historian with twenty-five years of experience as a fine art appraiser, served as the expert for the IRS before the Tax Court. After analyzing the testimonies of the two experts, the court rejected Wachter’s valuation, and found the value of the Maypole at $1,995,000 and of Orpheus at $375,000. The estate was found liable for the resulting tax deficiency, the amount of which to be determined later by the IRS.  

Analysis of the Estate’s Appraisal

While the Tax Court routinely weighs in on the valuation of paintings for the purpose of determining estate tax liability, the court in the case of Estate of Eva Franzen Kollsman v. Commissioner of Internal Revenue not only agreed with the analysis of the IRS’s expert but strongly objected to and criticized Wachter’s testimony referring to his valuations as unreliable and unpersuasive. Why did the estate’s appraiser incur such criticism by the Tax Court?

1. Lack of Objectivity

First, the Tax Court found that Wachter held a significant conflict of interest “that could cause a reasonable person to question his objectivity” by adjusting the valuation for his own benefit. Determining the appropriate estate tax liability greatly depends on the objectivity of an appraiser, especially in the context of assessing the fair market value of art. Such calculations demand “insider-knowledge” of the art market, and objectivity must accompany this skill and expertise in order to maintain the integrity of the estate tax framework.

IRS Revenue Procedure 96-15 outlines various conflicts of interest that an appraiser must avoid when crafting his appraisal for tax liability purposes. These prohibitions include the appraiser not inheriting property from the estate as a beneficiary or not being any part of the estate. The appraiser also cannot have been employed by the decedent, because such a relationship may color the motivations of either party. The IRS also requires the appraiser to “hold himself or herself out to the public as an appraiser,” as potentially demonstrated through membership in professional appraisal organizations. These organizations, such as the American Society of Appraisers (ASA) and the Appraisers Association of America (AAA), require their members to follow a code of ethics in order to avoid such conflicts of interest as identified by the IRS. For example, the AAA requires that its members must appraise property objectively, “independent of outside influences and without any other motive or purpose than stated in said appraisal.” The AAA offers a list of certified appraisers, who possess an extensive level of expertise, education, and experience.

In addition to the IRS procedures and ethical “carrots,” appraisers may face potential “sticks” to ensure objective and accurate work. Implemented by the Pension Protection Act of 2006, section 6695A of the Tax Code imposes a penalty on the appraiser who prepared an appraisal used for an estate tax return and the appraisal results in a substantial valuation understatement. An understatement has occurred if the reported value of the property is 65% or less of the amount determined to be the correct value. The penalty imposed is the lesser of 10% of the underpayment (or $1,000 if greater than the 10%) or 125% of the gross income received from the preparation of the appraisal. For example, if an appraisal resulted in an underpayment of $50,000 and the appraiser received $2,000 for the appraisal, the penalty imposed under section 6695A would be $2,500 as the lesser value of 10% of the $50,000 underpayment ($5,000) and 125% of the gross income of $2,000 ($2,500) for the appraisal.

The court held that Wachter’s relationship and correspondence with the estate’s executor, Hyland, during the valuation process impaired his objectivity and, correspondingly, his credibility. While Wachter was determining the fair market value estimates for the estate paintings, Wachter and Hyland apparently corresponded about the fate of the paintings. During this correspondence, Wachter, as a Vice President of Sotheby’s, solicited Hyland for the exclusive rights for Sotheby’s to auction the Maypole and Orpheus, if Hyland ever chose to sell the paintings. The Tax Court did not reveal whether or how much Wachter received for this appraisal or whether he differentiated between his two roles as an appraiser or potential seller of the paintings in this correspondence.  Under Sotheby’s terms of service according to the Tax Court, an auction sale would entitle Sotheby’s to a 20% commission on the first $200,000 of the hammer price. Presumably, the employee who would bring in property would also collect a certain fraction of the hammer price as an incentive for bringing business. It appears, according to the Tax Court, that Wachter “had a direct financial incentive to curry favor with Mr. Hyland by providing fair market value statements that benefited his interests as the estate’s residual beneficiary” and that Wachter thus “lowballed” the estimates of the paintings to reduce the estate’s tax liability. The Tax Court further found that the simultaneous timing of the valuations and Wachter’s pitch for exclusive auction rights seemed to imply that the latter influenced the former, demonstrating Wachter’s lack of objectivity.

Wachter’s actions suggest if not directly implicate the various conflicts of interest outlined in the IRS policy about appraisal procedures. While Wachter was not a direct beneficiary inheriting the paintings from the estate, his employer certainly benefited from the sale of the Maypole and the explicit or inexplicit arrangement between Wachter and Hyland. Thus, Wachter violated professional ethics requirements for objectivity with this “quid pro quo” arrangement. However, according to the Tax Court opinion and Wachter’s biography on the Sotheby’s website, he is not a member of any professional organizations that demand some sort of accountability. If Wachter’s valuation had occurred after 2006 (and not the year before), Wachter would likely have been penalized under section 6695A for the gross understatement of the painting’s value. Given the hammer price that was more than four times the value he ascribed to Maypole, Wachter valued that work well under the threshold set in the Tax Code at a quarter of the value determined by the Tax Court. While Wachter seemed to avoid any legal repercussions for his lack of objectivity, at least according to the Tax Court ruling, the estate was settled with the consequences and the adjusted estate tax liability. In order to avoid such scenarios, estates should investigate the objectivity of their appraisers and ensure some type of oversight or accountability when hiring them for this important task.

2. Exaggerating the Poor Condition of the Paintings

Second, the Tax Court objected to Wachter’s emphasis on the poor condition of the paintings when forming his valuations. In his report, Wachter described the condition of both paintings as covered in dirt and grime with extreme yellow discoloration, due to the decedent being a heavy smoker. According to Wachter, one could not be certain of the inherent value of the paintings in this condition, and he concluded that the value of the paintings should reflect the high level of risk involved in cleaning. However, the Tax Court found that such a risk was exaggerated, highlighting testimony of the conservator that the risks involved with cleaning were low. Moreover, the Tax Court pointed out that the cleaning process only took two to three hours, indicating that such a procedure was “comparatively easy and problem free.” Contrary to Wachter’s report, Cardile, the IRS expert, did not adjust for the dirty condition of the paintings as “surface dirt do[es] not affect the intrinsic value of an Old Master painting.”

Upon first consideration, accounting for the state of the painting, as Wachter did when calculating the value, appears to be a logical step in a fair market value analysis. According to IRS policies, an appraisal must include a description of the art item that states the physical condition of the work in addition to the subject, medium, size, visible marks, and provenance. In the past, the Tax Court has acknowledged the physical condition of the work and has adjusted the value accordingly. For example, in the Estate of James J. Mitchell v. Commissioner of Internal Revenue, the Tax Court placed less weight on the testimony of the IRS experts because they did not adjust their valuation of an early twentieth-century watercolor by American artist Charles Marion Russell to account for “its inferior status and for its poor paper quality and back boarding.”

While an appraiser may and should consider the physical condition of a work, Wachter’s assessment of Maypole and Orpheus was inappropriate due to the emphasis on the level of dirt – a condition that could be and was easily remedied. The cleaning and framing of Maypole and Orpheus, which occurred after Wachter’s valuations, cost the estate $4,500 and $4,350 respectively. Unlike the Russell watercolor which was painted with inherently volatile and poor materials, the dirt covering the Maypole and Orpheus was not intrinsic to the painting itself. Wachter’s emphasis on the dirt of the paintings ignores the guiding principle when determining fair market value that the hypothetical buyer and seller have “reasonable knowledge of relevant facts” affecting the potential sale. “Reasonable knowledge” includes facts acquired during the background investigation and negotiations for the sale, and in this particular case would likely involve consulting a conservator about the risks of cleaning a dirty painting. Wachter’s deep deduction in the value of the paintings to account for their dirtiness was misplaced and too substantial, for information about the actual cleaning process, which only took a few hours, was “readily discoverable.” The Tax Court did acknowledge that cleaning carries some risk but calculated only a 5% discount for the Maypole and a 25% discount for Orpheus to account for bowing, a more critical aspect of its condition. But Wachter’s inappropriate consideration of surface dirt demonstrates the importance of taking a holistic approach towards the analysis of a painting and fully accounting for all the facts that a likely buyer or seller would recognize when approaching a sale.

3. Need to Use Comparable Sales

Perhaps the most significant criticism of Wachter’s valuation by the Tax Court is the absence of comparable sales to support his analysis. “Comparables”  (or “comps”) are the recent selling prices of similar pieces of art that are used to help determine the fair market value of a piece of art, with the assumption that it will sell at a similar price of other similar works. The Tax Court referred to this omission as “remarkable” and with the absence of any comparables, “Wachter’s report lacks any objective support for his valuation figures.” According to the Tax Court, comparables of paintings by Pieter Brueghel sold between $1,040,000 and $3,331,000, and paintings by Jan Brueghel sold between $400,000 and $700,000.

The use of comparable sales provides the basic foundation for the valuation of art by offering an objective analysis of the likely market value. Cardile, the expert for the IRS, identified several comparable paintings for both the Maypole and Orpheus. Comparing the subject matter, medium, size, and the provenance (record of ownership) of similar paintings that sold prior to the date of the Kollsman estate was being appraised, Cardile could calculate the likely market price of the Maypole and Orpheus more accurately and confidently. Generally, courts, in their analysis of appraiser testimony, are likely to weigh more favorably comps that were sold closer in time to the date of valuation and are more similar in subject matter to the estate’s property than comparables that are too dissimilar to the painting at issue to provide an objective benchmark. For example, the court in Estate of Murphy v. United States found the testimony of the IRS expert to be particularly problematic and thus gave his testimony less weight than the testimony of other experts. The valuation of the IRS expert was based upon sales too remote in time, from six to nineteen years before the valuation date, while the testimony of the other experts relied upon sales only a few months before the valuation date.

When evaluating suitable comparables, courts focus on the details, such as the date of the sale and similarity in composition to the painting at issue. When an expert such as Wachter completely ignores such evidence, the court has very little information to rely upon when assessing the credibility and accuracy of a valuation and corresponding testimony. There is no reason to believe that Wachter did not know who painted Maypole and Orpheus and even those less familiar with leading artists are likely to recognize the surname Brueghel to find suitable comparables. The practice of using comparable sales in this context is so essential and commonplace that it is unclear why Wachter’s valuation was missing such a critical component. The lesson from this omission is that the strength and credibility of future appraisals depends upon finding pertinent and appropriate comps so that a court may properly analyze the proposed valuation.

Conclusion

The evasive “fair market value” is the cornerstone of determining estate tax liability. Calculating the value of a unique piece of property based upon the price of a hypothetical market transaction is an inherently difficult task. Appraisers rely upon past sales of comparable art pieces in order to predict the future activity of this market. They consider the whole piece of art, including the subject matter, condition, and provenance, from the point of view of a hypothetical buyer and seller for the fair market value analysis. Because such precise analysis requires great skill, knowledge, and years of specialized experience that members of the courts generally do not possess, the courts and accompanying legal system depend upon the objectivity of the appraisers. If such professionalism is absent, the courts and the IRS cannot administer the tax law fairly. Unfortunately for the estate of Eva Franzen Kollsman, its appraiser did not follow these principles, and the estate had to pay penalties for the omissions of its appraiser.

Selected Sources:

  1. Estate of Eva Franzen Kollsman v. Comm’r of Internal Revenue, 2017 T.C.M. (RIA) 2017-040 (2017).
  2. 26 U.S.C. § 2001.
  3. 26 U.S.C. § 2031.
  4. Treas. Reg. § 20.2031-1(b).
  5. 26 U.S.C. §§ 2053, 2054, 2056.
  6. Rev. Proc. 96-15, 1996-3 I.R.B. 41, § 8.04.
  7. Appraisers Association of America, Code of Ethics, https://www.appraisersassociation.org/index.cfm;jsessionid=15426E3A1A9207384153A96906B788A6.cfusion?fuseaction=document.viewDocument&documentid=720&documentFormatId=1353&CFID=3969729&CFTOKEN=a08c8da32b839881-B1374B0E-1C23-C8EB-805AFDB50E7E6B2D.
  8. 26 U.S.C. § 6695A.
  9. 26 U.S.C. § 6662(g).
  10. Sotheby’s, Bio of George Wachter, ttp://www.sothebys.com/en/specialists/george-wachter/bio.html.
  11. Estate of James J. Mitchell v. Comm’r of Internal Revenue, 101 T.C.M. 1435, at *14 (2011).
  12. U.S. v. Simmons, 346 F.2d 213, 217-18 (5th Cir. 1965)(finding that facts revealed during a background investigation of the decedent’s records constituted “reasonable knowledge” for purposes of determining the fair market value of property).
  13. Mary Anderson et al., Art Advisory Panel Helps Courts Sculpt Estate Valuations, 42 Est. Plan. 20, 11 (2015).
  14. Estate of Charles H. Murphy, Jr. v. U.S., No. 07-CV-1013, 2009 WL 3366099, at *18 (W.D. Ark. Oct. 2, 2009).

*About the Author: Emily Lanza is currently Counsel for Policy and International Affairs at the U.S. Copyright Office and had worked previously as a legislative attorney for the Congressional Research Service, advising Congress on intellectual property and estate tax issues. She received her J.D. in 2013 from the Georgetown University Law Center. Before her law career, she studied archaeology and worked for museums in various capacities. She can be reached at emilyla8@gmail.com.

Disclaimer: The opinions expressed here are solely of the author and do not express the views and opinions of the U.S. Copyright Office.

WYWH: Immigration Law and the Arts – NICE WORK IF YOU CAN GET IN

 

By Katherine Jennings

 

Screen Shot 2017-04-28 at 11.41.59 AM

Photo credit: Center for Art Law.

On March 9, 2017, the Center for Art Law held an Art Law Mixer addressing the timely and provocative topic of immigration issues confronted by immigrant artists with the recent issuance of EO 13769, among other anti-immigrant measures. The 45th President commenced his presidency with a barrage of Executive Orders (EOs) including EO 13769*, which was signed by Trump on January 27, 2017, and restricted travel to the U.S. from seven Muslim-majority countries and by all refugees. This EO has had far-reaching and devastating effects on immigrants including immigrant artists. It has wreaked havoc and confusion at the borders. Antagonizing foreign dignitaries, it has quickly been met with outrage and resistance by artist activists, art organizations, and lawyers.

 

The Georges Bergès Gallery, a stylish, SoHo gallery with an international focus, was the apt and welcoming site of the two-hour event, a first Center for Art Law (the “Center”) program to address immigration issues. It was composed of a wine and cheese reception and presentation by the founders of Lehach Filippa, an immigration law firm intended to serve creative professionals, followed by a Q&A. The discussion was moderated by Irina Tarsis, founder of the Center. Attendees included lawyers, artists and law students. After a brief warm up period during which attendees were encouraged “to talk to someone you didn’t come with,” Georges Bergès, the founder of the eponymous contemporary art gallery, spoke briefly to welcome all and to talk about the global perspective of his gallery. Bergès said his goal is to find authentic artists who are working in their own cultural context.

On to the substantive portion of the evening, Tarsis introduced Alejandro Filippa, Esq. and Michael Lehach, Esq, founding partners of Lehach Filippa. Lehach and Filippa spoke about the O-1 visa, commonly referred to as the “artist visa”, and the process of applying for work permits as a foreign artist. The current political climate and the effects of the anti-immigrant executive orders from President Donald Trump was also a topic of discussion. Filippa speculated that if the current precedent of an excessive number of executive orders is any indication, we will likely see more pushback and restrictions to immigration applications and processes in the future.

In order to qualify for an O-1 visa, or artist visa, an applicant must demonstrate “extraordinary ability by sustained national or international acclaim and must be coming temporarily to the United States to continue to work in the area of extraordinary ability.” Extraordinary ability in the field of arts means “distinction.” The Immigration Act of 1990 (Pub.L. 101-649, 104 Stat. 4978) was a national reform of immigration that, among other things, excluded artists and entertainers (as well as athletes and nurses) from qualifying for H-1B visas. Two new categories, O and P, were introduced for extraordinarily skilled foreigners in the arts and sciences. The 1990 legislation was created in response to the Immigration and Nationality Act of 1952 (Pub.L.), aka the McCarran-Walter Act, which was meant “to exclude certain immigrants from immigrating to America, post-World War II and in the early Cold War.

Clearly, both Lehach and Filippa enjoy their law practice and are competent, dedicated professionals. Their passion was evident as they spoke about the process of creating a solid application in order to achieve success in obtaining an artist visa. Advocating for their clients is predicated upon a solid application with supporting documentation. Involved in facilitating artist visas and residence applications, they represent foreign creative professionals who want to work in the US and creative organizations seeking foreign talent to work in their US office. Their clients are from diverse industries such as the performing arts, music, fashion, film, photography, design, fine art, journalism and more. These “extraordinary aliens” have included tattoo artists, dancers, and rappers. The client may seek Temporary Work Visas and /or Permanent Residence based on Extraordinary Ability.

Lehach and Filippa outlined the proof needed to establish a valid application for an artist visa. In addition to a detailed resume, the client should include all relevant documents regarding their awards, notable clients, publications and press, and work history. An applicant must provide at least eight references by professionals who can attest to the extraordinary abilities of the applicant. Noting that an applicant’s file can be huge, they also spoke about how they have to be from important and respected sources. Lehach noted that it would not do a client any good if he were to provide his private residence as a gallery that would show the applicant artist’s work. Rather, the gallery must be a well-known and established entity.

Another crucial component of the application is an itinerary of the events and activities in the beneficiary’s field of extraordinary ability. You must have a plan of what you will be doing, with whom and when, and it has to be concrete. This constitutes the Sponsorship aspect of the application. For example, the applicant must provide an established list of galleries who will show his or her work and a concomitant timeline. An Employer, an Agency, or an Agent is an acceptable sponsor. Finally, it is helpful for the applicant to have a portfolio as a physical manifestation of the accomplishments detailed in his or her resume.

Lehach and Filippa also spoke about the case of an application for an Artist Visa being rejected. They said it is much better to refile, than appeal, because the immigration agents can be fickle. Noting that it can often be difficult to decide what constitutes extraordinary ability, they said it is crucial to initially establish a solid case. Their law firm also deals with other immigration issues such as obtaining permanent residency, obtaining a green card, and asylum issues, and extension of artist visas.

The presentation was followed by a lively question and answer session. Both presenters showed obvious delight in their chosen field and were quick to address each question thoughtfully. One interesting tidbit revealed during the Q&A was that under the right circumstances there is even a provision for bringing an artist’s muse into the country on a visa. As for the immigration ban that instigated the theme of the evening, “a judge sitting on an Island in the Pacific” ruled it unenforceable.

*Note that on February 3, 2017, EO 13769 was given a temporary restraining order in a decision from the Ninth Circuit of the Court of Appeals. EO 13769 was revoked as of 3/16/17.

About the Author: Katherine Jennings is a lawyer and contemporary realist oil painter living in New Jersey. She has a B.A. in History from Duke University and a J.D. from Fordham University School of Law where she was an Associate Editor of the Fordham International Law Journal. Having practiced intellectual property and immigration law, she is also certified as an Art Law Mediator with VLA. She was recently accepted into the Copyist Program at the Metropolitan Museum of Art and her work may be viewed at www.katherinejenningsfineart.com.

 

WWYH: “Eyes on the NYC Department of Cultural Affairs” and Changing Policies

By Heather DeSerio*

On February 28, 2017, the New York State Bar Entertainment, Arts and Sports Law’s Fine Art’s Committee (EASL) hosted a brown bag lunch with Kristin Sakoda, Deputy Commissioner and General Counsel of the New York City (NYC or the “City”) Department of Cultural Affairs (DCLA or Department). Sakoda is a veteran at the DCLA and runs an all-female department of three attorneys. She presented to a room full of lawyers working in the arts about the DCLA’s mission the types of legal issues involved in the agency’s work, and the DCLA’s involvement in shaping the cultural policy of the City. Attendees of the event also learned about how the City administers and manages public art initiatives from the perspective of a lawyer, and the policies that shape the City’s arts-related initiatives.

Background

The creation of the Department of Cultural Affairs has an interesting story about how it became the DCLA that exists today. In 1869, a group of citizens proposed that NYC should build a museum for natural history, which led to the construction of the American Museum of Natural History. Afterwards, a number of museums began construction around the city. Next, followed the formation of an 11-member panel Art Commission in 1898, that oversaw the proposal and installation of permanent works of art, architecture, and landscape architecture on NYC owned property. Around 1934, then-mayor of NYC Fiorello La Guardia, appointed a Municipal Art Committee to advise the City on ways to stimulate New York’s cultural life during the hardships of the Great Depression. The Committee used funds from the Works Progress Administration, the emergency Relief Bureau, and other foundations. It wasn’t until 1968 that the DCLA was created within NYC’s Parks Department. In 1976, under the direction of Mayor Abraham D. Beame, the DCLA became its own department that existed separately from the Department of Parks and Recreation with its own commissioner. This was done so that the needs of the growing DCLA could be met and the Parks Department could better focus on providing for the Parks and Recreation initiatives.  

About the DCLA

The DCLA serves an important function in a city known for being one of the biggest cultural centers in the world. The annual budget on the Mayor’s Office website indicates that the DCLA is the nation’s largest municipal funder of the arts in the United States. During their 2017 fiscal year, their expense budget was $84.81 billion and a capital budget of $14.0 billion through 2018. (For more information about different breakdowns and allocations of funding for New York City see the annual budget by clicking here.)

The Department plays a pivotal role in encouraging and supporting public funding of art, artist residencies, and provides many grants to artists and institutions throughout the metropolitan area. This support contributes to New York’s diverse and robust cultural scene.

The DCLA has three primary funding divisions that provide support for the arts community. First there is the the Program Services Unit, which administers funds to groups that provide cultural experiences for NYC’s residents and visitors. The second funding division is the Cultural Institutions Unit that provides operational support (in the form of unrestricted operating grants and the payment of all energy bills – heat, light and power) for 33 major cultural institutions occupying City-owned buildings or land, such as the Metropolitan Museum of Art. The third division is the Capital Projects Unit (CPU), which provides capital in the form of grants for the design, construction, and equipment for those institutions and other cultural groups in City-owned and non-City-owned facilities. The Capital Projects are funded from the NYC’s Capital budget.

Among their other projects, the DCLA administers New York City’s program Percent for Art, which makes art accessible to the public and visible throughout NYC by commissioning and acquiring art for display in public spaces. As the title of the program implies, 1 percent of the City’s capital is made available for the commission of or acquisition of a public piece of art. There are currently over 400 acquired works displayed around NYC. Click here to view a map of all the public artwork on display that was funded through the Percent for Art Program.  A couple familiar works include the Frederick Douglass Memorial, located in Central Park West and the Triumph of the Human Spirit monument in Foley Square (near the court houses downtown). On February 15, 2017, NYC’s Office of the Mayor released a statement that Mayor de Blasio recently signed off on an increase to the Percent for Art program in the amount of 1% of the first $50 million as indicated in the bill, Intro. 1296-A.

Another key program administered by the DCLA is Materials for the Arts (MFTA). It was  created in 1978. MFTA provides nonprofit and educational organizations with free supplies to support and grow art programs citywide. The program is headquartered in a large warehouse owned by DCLA in Long Island City, New York. MFTA collects reusable materials from a host of donors, and distributes them free of charge to qualifying non-profit arts organizations, City agencies, public schools, and social, health and community service organizations that have arts programs in New York City. Individual artists qualify only if they are financially sponsored by a non-profit organization. Once an entity qualifies, they can request a shopping appointment for materials at the MFTA warehouse or can obtain items through their online listing database. The MFTA also provides training for teachers on how to creatively reuse the donated materials and integrate them into art projects. The MFTA has distributed free supplies to more than 1,900 member organizations and public schools and collected more than 1.2 million pounds of high quality reusable goods valued at $5.8 million from over 1,685 donors, according to the DCLA’s website.

The Department has many new initiatives that focus on increasing support for art institutions and artists. For instance, one of these new initiatives involves integrating art into city services involves placing individual artist to partner with DCAS in the Public Artists in Residence (PAIR) program. There is also the IDNYC Cultural Partnerships where the City offers NYC residents a free ID card that has the benefit of providing free one year membership to venues throughout the five boroughs such as the Museum of Modern Art, the New York City Ballet, the Bronx Zoo, and many more. These programs provide the public with increased  access to art programs to foster art education and more opportunities for residents to become members of cultural institutions to gain free access to museums, zoos, aquariums, and much more.  

DCLA’s Legal Counsel

The DCLA’s legal department provides guidance and support for most of the programs that the DCLA offers. More cultural institutions, museums, government, for profit and nonprofit should take note of the number of attorneys working for the DCLA. There are at least three attorneys that work together to provide support for all of DCLA’s initiatives in conjunction with the NYC Law Department. DCLA’s General Counsel handles a wide variety of issues for the City such as employment law, contracts, artist rights, leases, licensing, and legislative drafting.

The legal department at the DCLA also focuses on the City’s interest in artist rights under the 1990 Visual Artists Rights Act (VARA), 17 U.S.C. § 106A. This provision is relevant when the DCLA commissions or agrees to purchase a work of art to be displayed publicly. Artists who are commissioned by the DCLA or who sell their artwork to the City should be aware of their “VARA rights.” This is because the artist’s moral rights in the artwork are impacted when the agreement is a work for hire agreement or the City includes provisions that indicate that the City has right to control the work or remove it for safety reasons. See, this previous article VARA, Back to the Rescue of Public Art in NYC written by Irina Tarsis of the Center for Art Law, for more information about VARA rights and provide an example of issues that an artist can face with public art agreements.

The DCLA attorneys also work with city council and provide guidance in drafting legislation for the Percent for Art Legislation program by making policy decisions for the department. The lawyers at the DCLA also carefully watch issues at the national level because decisions at the federal level can impact their Department. This is especially true as the new administration is taking office and making significant changes.

Federal Funding and the DCLA

Funding for exhibits is not the only problem that cultural institutions will face. On March 16, 2017, the United State’s Office of Management and Budget, released the proposed Budget for 2018 making it clear that the current administration wants to eliminate funding for the National Endowment for the Arts (“NEA”). The state and local Department of Cultural Affairs across the country face an important question about how they will be impacted by the proposed budget cuts to the NEA. Sakoda pointed to the fact that the federal budget trickles down to the state and then to the city. If the funding received by the State is reduced by the Federal Government it will in turn have a dramatic effect on the amount of available funds that the City receives from the State. Accordingly, the reduced budget the City will receive from the State will be reflected in the City’s reduced funding for grants to artists and cultural institutions. This will result in a decline in funding for exhibitions, art development, art organizations, and other art initiatives. There will also be a reduction in the acquisition of public art, and cultural institutions will be impacted significantly at the local level if the federal budget is reduced.

One of the most concerning issues with the federal cutbacks for the NEA is the federal insurance program that the NEA provides for exhibitions. There is a common requirement in loan agreements that museums must take out insurance for artwork displayed in an exhibit. Insurance is commonly provided by the NEA’s federal insurance program. This federal insurance program plays a huge role in providing insurance for artwork and without it many exhibits would never happen in the United States because major museums across the country would be unable to get insurance on their own for the amount required to put on large exhibits. The New York Observer’s article The Masterpiece Trade: Meet the U.S. Agency That Makes Museum Blockbusters Possible noted the role the federal insurance program plays in bringing major exhibits to museums by pointing out that the Museum of Modern Art displayed a statement that indicating that the recent “‘Henri Matisse: The Cut-Outs’ exhibit from October 12, 2014–February 10, 2015, was ‘supported by an indemnity from the Federal Council on the Arts and the Humanities.’”

For more information about the role that the NEA plays in the arts in the United States please read the article, The Legislative History of NEA and NEH, written by Emily Lanza.

Conclusion

Not only with the programs the DCLA manages trickle down to artists, institutions, and organizations, even public schools will feel the effects of this blunder because they would not receive materials from the Material for Arts Program. Artists will feel the shift in the federal government’s agenda in a dramatic way and be left with little financial assistance to spur creativity and care for artwork outside of the patronage system. It will have a stifling effect on creativity, and a failure to fund the NEA will reduce the number of important exhibitions, development of important non-profit organizations, leasing and acquisition of equipment, and reusable materials for public schools that help provide the public with motivation to develop and come up with new works to be displayed and interacted with.

Without the support and expertise of the DCLA, there is a big question that plagues the future of many publicly funded organizations, institutions, and art projects. The programs that the DCLA department funds are all susceptible to be reduced in proportion to the amount of funding received from the federal government. The policies and legislative initiatives could be altered as well. At this time, there is concern about whether the proposed budget or reduction in NEA funding will be approved by Congress. There are also discussions regarding an approved budget cut’s impact among members of the legal community that work within the creative organizations and individuals.

Helpful Sources

*About the Author: Heather DeSerio (NYLS, JD Class 2017) is a Spring 2017 Legal Intern with the Center for Art Law. In her studies, she is concentrating in Intellectual Property Law. Prior to law school, she worked as a fine artist and received a Bachelor of Fine Arts in Painting from Ringling College of Art and Design. She can be reached at heather.deserio@law.nyls.edu.

Disclaimer: This article is for educational purposes only and is not meant to provide legal advice. Any views or opinions made in the linked article are the authors alone. Readers are not meant to act or rely upon the information in this article and should consult a licensed attorney.

Cuba’s in the Air: The Legal Challenges to Loaning Art from Cuba due to Judgments under the State Sponsored Terrorism Exception

By Mandy Estinville*

Cuba and the United States are closer now than they have been for 50 years. In 2015, the United States officially removed Cuba from its list of State Sponsors of Terrorism. Moreover, the Obama Administration amended the Office of Foreign Assets Control (OFAC) regulations to allow for greater freedom in travel and remittances, and to permit U.S. telecommunications, media, construction, and agricultural companies to establish a physical presence in Cuba. Most recently, the United States loosened certain sanctions on Cuba, including lifting the $100 limit on bringing Cuban rum and cigars into the United States. Although future of the normalization process between the two countries is uncertain under the Trump administration, a continuation of diplomatic relations with Cuba will promote cultural exchanges, such as selling and loaning art to museums and galleries. In fact, The Art Newspaper reports that the “market for Cuban art is booming; 20th-century Modernists such as Wifredo Lam, Amelia Pelaez, and Rene Portocarrero are particularly popular.” 

Despite improved relations between the two countries, there remain many unresolved issues that may affect Cuba’s willingness to export art to the U.S. In particular, Cuba owes about $7 billion dollars in property claims to American citizens and corporations whose property in Cuba was seized by the Cuban government during the Fidel Castro administration. In addition to those claims, Cuba is responsible for default judgments totaling over $3 billion dollars for purported acts of terrorism against U.S. citizens. Until paid, judgment holders of terrorist-related claims may attempt to seize any Cuban governmental owned art that enters the U.S. for a museum exhibition.

The State Sponsor Terrorism Exception

The Foreign Sovereign Immunities Act (“FSIA”) provides that  foreign states are immune from the jurisdiction of state and federal courts. However, Congress has created certain terrorism-related exceptions to the general immunity that foreign sovereigns enjoy within the U.S. Namely, the State Sponsor Terrorism exception (“SST”) allows courts to exercise jurisdiction over claims against foreign state sponsors of terrorism that cause personal injury or death to the U.S. citizens.

Cuba was originally placed on the State Sponsors of Terrorism list in 1982 for reportedly sponsoring communist groups in other countries. After Congress enacted the State Sponsor Terrorism exception to the FSIA, many plaintiffs filed human rights lawsuits against Cuba. Consequently, in many cases, courts found Cuba liable for acts of terrorism against U.S. citizens. These cases were ex parte proceedings, which resulted in default judgments since Cuba failed to appear. In Alejandre v. Republic of Cuba, the Florida Southern District court found jurisdiction under the SST exception and held Cuba liable for the Cuban Air Force’s shoot-down of two U.S. registered civilian planes in 1996, killing four people, three of them U.S. citizens. Each plaintiff, in that case, was awarded between $16 and $17.5 million dollars in compensatory damages as well as $137.7 million dollars in punitive damages.  The Florida Circuit court  also found jurisdiction under SST exception in Hausler v. Republic of Cuba and held Cuba liable for the execution of Bobby Fuller in 1960. Mr. Fuller’s family was awarded $65 million dollars in economic losses, $35 million dollars for non-economic compensatory damages, and—notably—$300 million in punitive damages. Lastly, the court in Villoldo v. Ruz found jurisdiction under the SST exception and held Cuba liable for its role in the imprisonment and torture of Gustavo Villoldo following the Cuban Revolution. As a result, the court awarded the plaintiffs a $2.79 billion dollars judgment against the Republic of Cuba and other Cuban parties.

Enforcing Judgments Against Cuba

Although the plaintiffs in Villoldo, Hausler and other cases won sizable judgments against Cuba, the Cuban government failed to make any payments. Challenges to obtaining payment for these judgments remain since Cuba has no attachable property in the United States. Consequently, the plaintiff’s only current viable option is to go after the estimated $243.2 million dollars worth of assets previously blocked by the Kennedy administration following the Cuban Missile Crisis. These assets were originally blocked, or “frozen,” in order to prevent Cuba from using the United States banking system to transfer money to other Latin countries for use by local communist groups.

Some plaintiffs have been successful in attaching their judgment to Cuban blocked assets under section 201(A) of Terrorism Risk Insurance Act. This Act allows for the liquidation of blocked or frozen assets of a foreign state designated as a state sponsor of terrorism, or its agency or instrumentality, to satisfy a judgment against the foreign state for a claim based on SST. In fact, plaintiffs in Weininger v. Castro collected over $90 million dollars on their terrorist-related judgments against Cuba by liquidating frozen bank accounts owned by Cuban telecommunications companies. Because Cuban assets in the United States  are sparse, plaintiffs are forced to be creative in enforcing their judgments. For instance, a plaintiff unsuccessfully sought to have a $63.6 million judgment paid out of BNP’s forfeiture of funds for its criminal conduct of processing and transferring billions of U.S. dollars to and from entities in Sudan, Iran, and Cuba.

Judgments against Cuba under the State Sponsored Terrorism Act may attach to Art loaned from Cuba

A potential unintended consequence of the normalization between Cuba and the U.S. is that it may provide plaintiffs with another viable option to collect on their judgments against Cuba. Section 1610 (a) of FSIA provides limited exceptions to immunity by allowing claimants to attach their judgments to foreign state’s property in the U.S. under certain circumstances.21 Under § 1610 (a) (7), claimants with judgments related to the State Sponsor Terrorism exception can attach that judgment to any Cuban governmental property. This attachment can occur regardless of whether the property is or was involved with the claim so long as the property is in the U.S. in connection to a commercial activity.

Typically, museums can apply to protect internationally loaned artworks from seizure under the Immunity from Seizure Act (“IFSA”). This protection is not automatic, once a museum submits its application to the State Department, the President or his designee must determine whether the object is of cultural significance and whether the temporary exhibition is in the national interest.  While IFSA may protect Cuban loaned art from attachment for judgments relating to SST claims, it is unclear if the State Department will grant this immunity for Cuban loaned art under the Trump administration since the future of the normalization process between the U.S. and Cuba is uncertain. Without an approved IFSA application, it is likely that the risk of possible attachment for judgments obtained against Cuba will curtail the chances of Cuba exporting its art to the U.S. for temporary exhibits. Relatedly, Cuba recently failed to loan art to the Bronx Museum for the “Wild Noise” exhibit despite a ruling from the Obama administration granting the pieces protection from seizure. Instead, the museum exhibited pieces from private collectors and galleries. Cuba’s reluctance to loan art to museums in the U.S. may be attributed to the diplomatic uncertainties under the Trump administration.

In December 2016, Congress enacted the Foreign Cultural Exchange Jurisdictional Immunity Clarification Act ( the “Immunity Clarification Act””), which amended the Foreign Sovereign Immunity Act in response to the Malewicz v. City of Amsterdam finding that temporary art loans for exhibits are deemed a commercial activity. This new law clarifies that the act of exporting art that has been granted immunity from seizure under IFSA for a temporary exhibit in the U.S. is not considered a commercial activity and is, therefore, immune from U.S litigation. Despite the potential for this new amendment to increase international art exchanges, Cuba may still be vulnerable to expropriation claims if it exports art that was confiscated during Fidel Castro regime. One of the exceptions carved out in the Immunity Clarification Act disallows immunity for works “taken in connection with the acts of a foreign government as part of a systematic campaign of coercive confiscation or misappropriation of works from members of a targeted and vulnerable group.” Cuba may fall under that exception since it had systematically seized all Cuban property including property belonging to American individuals and corporations without compensation after the 1959 revolution led by Castro.

The ongoing disputes and outstanding claims and judgments between Cuba and the United States are not going to disappear. It has been reported that in addition to the  claims the U.S. has against Cuba, Cuba asserts that the United States also owes Cuba billions in reparations and for the economic damage caused by the embargo as well as damages resulting from events such as the Bay of Pigs invasion. Due to the precarious nature of Cuba’s relationship with the U.S, it is imperative that Cuba resolves its outstanding judgments in the U.S. before it risks loaning any of its art to a U.S museum.

From the Editors:

Cuba CollageOn March 22, 2017, Cardozo Law School’s Art Law Society and the Fashion, Arts, Media, and Entertainment Law Center (FAME) hosted a symposium, about Cuban art and the art market called “Not Their Art! Demystifying the Cuban Plunder and Nationalization of Art, Hoping for Restitution, and Predicting the Future of the Embargo and Its Sanctions.” Abigail McEwen, a specialist in Cuban and Porto Rican art of the twenty-century, moderated the event. There were three speakers at the event: Monica Dugot, the current International Director of Restitution at Christie’s, Carmen Melian, the former Director and Senior Specialist in Latin American Art at Sotheby’s New York for 15 years, and Carl Micarelli, a New York lawyer that advises clients on compliance with with regulations from the U.S. Department of Treasury’s Office of Foreign Assets Control.

Presentations at Cardozo centered around how artworks that were confiscated (or nationalized) by the Cuban government following the Cuban Revolution and the complicated relationship between Cuba and the United States have caused long-term problems still affecting the art market. For example, Dugot spoke about how Christie’s strives to make restitution of artwork for families that have had artwork confiscated an easy process for any valid claim that arises and is supported by sufficient documentation. Melian provided many examples of how artwork has come to market outside Cuba, including one involving a Cuban priest who sold artworks that were left with the church in an effort to provide funds for the parish, other examples centered around how many artist such as Wilfredo Lam who fled Cuba left many works behind, and how many forgeries permeate the art market as artworks are being copied from photographs with Cuban art in the background. Questions of authenticity and title have presented significant problems for provenance research and have complicated even the basic determination of whether artworks were privately or state-owned property. Micarelli informed the audience about the various U.S. laws and embargos  imposed vis-a-vis Cuba that affect the art market; he warned the audience about the uncertainty of U.S. policy in relation to Cuba.

The market for Cuban artwork is said to be growing, but the sentiment of the panel was to be cautious when a buyer is going to purchase artwork that is from Cuba because of so much uncertainty surrounds ownership of the artwork that comes from Cuba.

Select Sources and Suggested Reading

  1. Julie Hirshchfield Davis, U.S. Removes Cuba From State-Sponsored Terrorism List, New York Times (May 29, 2015) https://www.nytimes.com/2015/05/30/us/us-removes-cuba-from-state-terrorism-list.html.
  2. Frequently Asked Questions Related to Cuba https://www.treasury.gov/resource-center/sanctions/Programs/Documents/cuba_faqs_ne.w.pdf
  3. Julie Hirshchfield Davis, Obama, Cementing New Ties With Cuba, Lifts Limits on Cigars and Rum, New York Times (October 14, 2016)  http://www.nytimes.com/2016/10/15/world/americas/obama-cuba-trade-embargo.html?_r=0.
  4. David D’Arcy, Cuba refuses to return seized art despite thaw in relations with US, The Art Newspaper (Feb. 23, 2015) http://old.theartnewspaper.com/articles/Cuba-refuses-to-return-seized-art-despite-thaw-in-relations-with-US/36940
  5. Mari-Claudia Jimenez, “RESTITUTING LOOTED CUBAN ART,” ASCA Cuba in Transition (2009), available at http://www.ascecuba.org/c/wp-content/uploads/2014/09/v19-jimenez.pdf
  6. 28 U.S.C. § 1605
  7. 28 U.S.C. § 1605A
  8. CRS Report for Congress: Cuba and the State Sponsors of Terrorism List https://www.fas.org/sgp/crs/row/RL32251.pdf
  9. 996 F. Supp. 1239 (S.D. Fla. 1997).
  10. Hausler v. Republic of Cuba, No. 02-12475, 2007 WL 6870681 (Fla. Cir. Ct.
    Jan. 19, 2007).
  11. Villoldo v. Ruz, No. 08-14505 CA-25, 2009 WL 1832603, at *2 (Fla. Cir. Ct. May
    29, 2009).
  12. Can Creditors enforce Terrorism Judgment against Cuba? https://www.fas.org/sgp/crs/terror/creditors.pdf
  13. Terrorist Assets Report for Calendar Year 2015 https://www.treasury.gov/resource-center/sanctions/Programs/Documents/tar2015.pdf
  14. Cuban Assets in U.S Frozen by Treasury, Chicago Tribune (July 9, 1963) http://archives.chicagotribune.com/1963/07/09/page/1/article/cuban-assets-in-u-s-frozen-by-treasury
  15. Terrorism Risk Insurance Act of 2002, Pub. L. No. 107-297, § 201, 116 Stat. 2322.
  16. 462 F. Supp.2d 457, 98-503 (S.D.N.Y. 2006)
  17. United States v. BNP Paribas S.A., 14 Cr. 460 (LGS) (S.D.N.Y. Apr. 30, 2015)
  18. 28 U.S.C. § 1610(a)
  19. Immunity from Seizure Act: 22 U.S.C § 2459 https://www.gpo.gov/fdsys/pkg/USCODE-2011-title22/html/USCODE-2011-title22-chap33-sec2459.htm
  20. Randy Kennedy, Bronx Museum Won’t Get Loan of Art From Cuba, New York Times (Jan. 23, 2017) https://www.nytimes.com/2017/01/23/arts/design/bronx-museum-of-the-arts-cuba-declines-to-send-art.html
  21. Malewicz v. City of Amsterdam, 517 F. Supp. 2d 322; H.R. 6477
  22. Foreign Cultural Exchange Jurisdictional Immunity Clarification Act: H.R. 6477 https://www.congress.gov/bill/114th-congress/house-bill/6477
  23.  Frances Robles, Cuba Seizures Now Present Opportunities, New York Times (Dec. 21, 2014) https://www.nytimes.com/2014/12/22/world/cuba-seizures-now-present-opportunities.html.
  24. Senior State Department Official on Cuba Claims Discussions https://2009-2017.state.gov/r/pa/prs/ps/2016/07/260666.htm

About the Author: Mandy Estinville is an attorney based in New York, NY. She can be reached at mandyestinville@gmail.com.

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

 

The Legislative History of NEA and NEH

Art like life should be free, since both are experimental.

~George Santayana

by Emily Lanza*

NEA NEHOn March 16, 2017, the President of the United States announced his proposed budget for 2018, which outlines his plans to eliminate the National Endowment for the Arts (NEA) and the National Endowment for the Humanities (NEH). Notwithstanding the political arguments surrounding this issue or a likelihood of manifestation of these plans, in order to fully grasp their intended role and current impact on the arts and humanities communities, it is important to consider why Congress created these agencies in the first place, over fifty years ago.

Legislative history not only reveals the past but also informs the present, specifically the basic role of an agency or program. Thus, in order to create a more comprehensive and convincing argument in favor of these agencies having a future, we must first turn to the past. This article considers the significance of the two agencies from a legislative history perspective and examines how the legislative history can affect the future of these programs.

Overview of NEA and NEH

The United States is one of few nations not to have a Ministry or Department of Culture. Instead some of the duties a Ministry of Culture would undertake are designated to the NEA and NEH. Both agencies are part of the National Foundation on the Arts and the Humanities (“National Foundation”). The National Foundation was established by the National Foundation on the Arts and the Humanities Act of 1965 (“Act”) to promote a broadly conceived policy of support for the arts and humanities throughout the United States. The NEA provides financial grants to individuals, nonprofit groups, and the States to support engagement in the creative and performing arts while the NEH provides grants to support academic and scholarly humanistic teaching, learning, and research.

As independent agencies, the NEA and NEH each have a chairman and an advisory council. Appointed by the President with the advice and consent of the Senate, the chairman of NEH and the chairman of NEA are leaders in his/her particular field. William Drea Adams, an educator and the current NEH chairman, had previously served as President of Bucknell University and Colby College. With a background in arts administration, Jane Chu currently serves as the chairman of the NEA and is also herself an accomplished artist and musician. 

While congressional appropriations are the primary source of funding for both agencies, the NEA and NEH can accept tax deductible donations including gifts of stock and other property. However, under government ethics restrictions, these agencies may accept donations from an organization that is eligible for an endowment grant “only if that organization confirms in writing that it has not received a grant in the past three years and does not intend to apply for a grant for the next three years.”

Legislative History of the National Foundation on the Arts and the Humanities Act of 1965

Bills proposing the National Foundation were introduced in the House of Representatives and the Senate on March 10, 1965. The Special Subcommittee on Arts and Humanities of the Senate Committee on the Labor and Public Welfare and the Special Subcommittee on Labor of the House Committee on Education and Labor held hearings on the proposed Foundation during February and March of 1965. By September of 1965, an amended Senate Bill (S.1483) passed both houses, and President Lyndon Johnson signed the National Foundation on the Arts and the Humanities Act of 1965 into law.

Congress heard over fifty witnesses during seven days of hearings to discuss the proposed National Foundation on the Arts and Humanities, providing a robust legislative history. Three themes arise from the legislative history of this Act and the foundation of NEA and NEH: (1) the need to support the arts and humanities financially; (2) such support is in the national interest; and (3) that the federal government should accept the role and responsibility of providing this support.

The Need for Financial Support of the Arts and Humanities

According to the legislative history for establishing the National Foundation, Members of Congress and the relevant stakeholders at the time naturally focused on the financial needs of the arts and humanities, as the fundamental purpose of these agencies is to provide grants. However, Congress did not intend the National Foundation to serve as the only or primary supporter of arts and humanities in the United States, instead it was to act as a catalyst that “stimulate[s] private philanthropy for cultural endeavors and State activities to benefit the arts.” Congress noted that private financial support in the arts and humanities was “lagging,” as the number of endowment and foundation gifts to arts and cultural institutions was dropping. In order to encourage such donations, Congress authorized the proposed agencies to match funds donated from private sources, for Congress believed that financial support originating from multiple sources best reflected the operations of a democratic society.

Similarly, through the agencies’ state grant programs, Congress intended to increase the opportunities for access to the arts and humanities for everyone across the country. Congress hoped that encouraging and supporting the arts and humanities at the local level would allow a greater number of citizens to enjoy and appreciate the arts beyond those that live in the nation’s cultural centers. Thus, this collaborative approach between the federal and state governments towards funding the arts and humanities represented a recurring theme in the legislative history, ultimately shaping the structure and activities of the agencies.

National Interest in Supporting the Arts and Humanities

The importance of the arts and humanities to the nation was another predominant theme during the legislative history of the National Foundation on the Arts and the Humanities Act of 1965 and the creation of NEA and NEH. Together Members of Congress and stakeholders at the Hearings discussed the role of the arts and humanities in developing a successful democratic society. More specifically, many people explained that the arts and humanities teach us to think, to express ourselves, and to solve problems – all valuable and necessary qualities of productive citizens of a democratic society. Barnaby C. Keeney, President of Brown University and the Chairman of the Commission on the Humanities, eloquently stated:

“Only through the best ideas and the best teaching can we cope with the problems that surround us and the opportunities that lie beyond these problems. Our fulfillment as a Nation depends on the development of our minds; and our relations to one another depend upon our understanding of one another and of our society. The humanities and arts, therefore, are at the center of our lives and are of prime importance to the Nation and to ourselves. Very simply stated, it is in the national interest that the humanities and arts develop exceedingly well.”

Related to the civic benefits of the arts and humanities, Members of Congress and stakeholders also discussed the role of arts and humanities in education and employment – two issue areas of particular relevance to many throughout the country. Several witnesses, including the Commissioner of Education, mentioned the role of arts and humanities as a necessary component of a well-rounded education program from grade school to university. Similarly, others considered how the arts and humanities provide opportunities for employment and encourage people to realize their potential in their chosen fields by allowing them to acquire and develop certain skills – namely the skills involving expression and critical thinking.

Lastly, Members of Congress emphasized that the arts and humanities benefit the whole nation by assisting with our understanding of other peoples and cultures and by maintaining a positive image of the United States throughout the world. According to Senator Kennedy, arts and humanities “provide a vehicle for understanding and respect between men of all races and cultures.” Both the Senate Report associated with the Act and the Hearings explained that dedicated federal agencies to the arts and humanities “would serve not only to deepen our understanding of our friends and allies throughout the world, but would strengthen the projection of our Nation’s cultural life abroad, and enable us better to overcome the increasing ‘cultural offensive’ being waged by Communist ideologies.” Congress noted that the arts and humanities act as important cultural ambassadors both at home and abroad.

Federal Government Role in the Arts and Humanities

While legislative history reveals that Congress generally agreed about the importance and the need for financial support of the arts and humanities, perhaps the most critical issue discussed during the Hearings was the federal government’s role and responsibility in these areas. Those involved in the legislative history of the Act believed that the federal government’s interest and leadership in the arts and humanities would serve as the most effective manifestation of the national importance of these fields. Several remarked that the federal government’s involvement in the arts and humanities would “set[] a national tone of interest” and thus generate more visibility for the arts and humanities at the national level. Similarly, other stakeholders at the Hearings noted that the federal government is the best entity to foster cooperation between organizations and other government agencies by offering coordination and direction at the federal level.

Moreover, the legislative history demonstrates that many Members of Congress were keenly aware of the federal government’s involvement in another academic field: science. In the 1960s at the height of the space race, the U.S. government placed significant emphasis on science and technological development, which was viewed at that time as a priority for national security. One witness remarked during the first day of the hearings that a “substantial proportion of our attention and our national budget is directed toward motion in space. Our aspirations and goals are linked, literally, with the moon and the stars.” Congress intended with the National Foundation on the Arts and the Humanities Act to correct the imbalance between federal support for science and federal support for the arts and humanities.

Using the Past to Guide the Present & Future

So what does the legislative history of the National Foundation on the Arts and the Humanities Act of 1965 tell us about the present and future of the NEA and NEH? One of the points of delving into an Act’s legislative history is to understand congressional intent. In the case of the National Foundation on the Arts and the Humanities Act, Congress intended to bestow on the federal government the responsibility to support, both financially and administratively, the arts and humanities. In order to justify this responsibility, Congress repeatedly referred to the basic fundamentals of our society and nation that are as relevant today as fifty years ago and, consequently, will likely be as relevant fifty years from now.

These fundamental principles include democracy, productivity, and leadership. In 1965, Congress understood that these principles, which are entwined with the arts and humanities, make up the foundation of our society and country. Congress favored a democratic approach towards funding the arts and humanities in which the federal government collaborates with private donors to fund projects that would enable a greater number of people across the country to enjoy and benefit from the arts and humanities. Congress also highlighted that the arts and humanities foster the productivity of the nation’s citizens, by providing opportunities to develop critical skills necessary for success in the context of education and employment. Likewise, the arts and humanities are important vehicles to demonstrate American influence and leadership at home and abroad.

While the specific concern about the threat of “Communist ideologies” may be indicative of the 1960s, the service that arts and humanities can provide to the nation as a whole is still relevant today. Such relevance stems from the universal and democratic principles that shape our identity as a nation and society, which Congress discussed and debated while creating the NEA and NEH during the legislative history of the National Foundation on the Arts and the Humanities Act of 1965.

In 2016, Congress appropriated $148 million (0.003 percent of the budget) to the NEA and the same amount to NEH. Considering the $3.9 trillion budget of the federal government, the NEA and NEH offer bargain services to provide the basic fundamentals of an enlightened citizenry, democracy, productivity, and leadership. Cutting these agencies, while only a small part of the federal budget, would have a disproportionate impact on the prosperity of the nation. The nation cannot afford to ignore the lessons and insight revealed by the legislative history of these two agencies formed only fifty years ago. 

Select Sources:

  • Executive Off. of the President of the U.S.: Office of Mgmt.& Budget, America First: A Budget Blueprint to Make America Great Again,5 (2017), available at https://tinyurl.com/k9aj588.
  • Pub.L.No.89-209,79 Stat.845 (1965). Preamble to the Act “To provide for the establishment of the National Foundation on the Arts and the Humanities to promote progress and scholarship in the humanities and the arts in the United States.” Pub.L.No.89-209,79 Stat.845 (1965).
  • 20 U.S.C.§ 954(b),(c),(f).
  • 20 U.S.C.§ 956 (a), (b),(c),(f).
  • See, e.g.,NEA,2015 ANNUAL REPORT 14 (2016), available at https://www.arts.gov/sites/default/files/2015%20Annual%20Report.pdf.
  • 20 U.S.C.§ 959(a)(2).“Other property” can include works of art.
    NEA, ABOUT THE NEA: DONATE, available at https://www.arts.gov/about/donate.
    H.R.6050,89th Cong.(1st Sess.1965) (introduced by Rep.Thompson,D-
    NJ).
  • S.1483,89th Cong.(1st Sess.1965)(introduced by Sens. Pell D-RI, Javitas R-NY, Gruening D-AK). Hearings were held on February 23-26 and March 3-5,1965.
    President Lyndon Johnson remarked at the signing of the bill that “What this bill really does is to bring active support to this great national asset, to make fresher the winds of art in this great land of ours.The arts and the humanities belong to the people, for it is, after all, the people who create them.” The American Presidency Project,“Remarks at the Signing of the Arts and Humanities Bill,” http://www.presidency.ucsb.edu/ws/?pid=27279.
  • S.REP.NO.89-300 (1965). National Arts and Humanities Foundations: Joint Hearing Before the Special Subcomm. on Arts and Humanities of the S.Comm.on Labor and Pub.Welfare and the Special Subcomm. on Labor of the H.Comm.on Education and Labor,89th Cong.5,54 (1965)(hereinafter “Hearing”) (statements of/by Sen.Jacob K.Javits, Sen.Edward M.Kennedy, Rep.John E.Fogarty, Dr. Barnaby Keeney, Pres., Brown University; and Chairman,Commission on the Humanities, Roger L.Stevens, Chairman, John F.Kennedy Center for the Performing Arts; testimony and statement of Francis Keppel, Commissioner of Education; John A.Ryan,President,Philadelphia Federation of Teachers, and American Federation of Teachers,AFL-CIO; Rep.John E.Fogarty; Rockefeller Panel Report on the Future of Theater,Dance,Music in America; statement of Alvin C. Eurich, Pres., Aspen Institute for Humanistic Studies; remarks of Sen.Pell; statement of Francis Keppel, Commissioner of Education).
  • Philip Bump,”Trump reportedly wants to cut cultural programs that make up 0.02 percent of federal spending,” Wash.Post. (Jan.19,2017), available at https://tinyurl.com/lsl5rjm.

*About the Author: Emily Lanza is currently Counsel for Policy and International Affairs at the U.S. Copyright Office. She received her J.D. in 2013 from the Georgetown University Law Center. Prior to law school, she studied archaeology and worked for museums in various capacities. She can be reached at emilyla8@gmail.com.

From the Author: While many of the readers of this article are already aware of the importance of arts and humanities funding, this article, instead intends to select concepts from the legislative history that may be used to inform future discussions.

Disclaimer: The opinions expressed here are solely of the author and do not express the views and opinions of the U.S. Copyright Office.

Book Review: “Art and Business: Transactions in Art & Cultural Property” (2016)

By Marine Leclinche*

Art and Business coverWith every new publication on the subject of art law we are pleased to note the developments and growth of the field, as well as acknowledge new authors tackling the subject.

In his introduction, to Art and Business Kevin P. Ray, a Chicago-based attorney who specialized in art and cultural heritage and financial services at Greenberg Traurig, LLP, explains that this book is not intended to be exhaustive but rather to “provide an introduction to what people need to know when entering into transactions that involve art”. Indeed, the goal is deftly accomplished by the book that provides a comprehensive and concise presentation of the transactional issues and challenges encountered in the global and developing art market. While the author wishes for his book to be of interest to artists, collectors or attorneys, it can also be added that this book is definitely worth reading for students graduating from law school or art school. Even if art law is now an accepted practice area, and law schools are more and more willing to train students to this field, this textbook is a good reminder of the diversity of the subject. Art law encompass many diverse issues in addition to copyright and infringement.

Ray’s examination of the art law field is divided into ten chapters. Of the ten chapters, the first seven introduce readers to the basics of art transactions where art deals are involved, namely: cultural property, intellectual property, art trade, authenticity or title, but transactions in the art world are not always mere question of copyright infringement, title or authenticity, there can be restrictions on materials, or preemptive rights among countries that can complicate international business relationships for example. Ray uses the last three chapters to synthesize the themes of art finance and art-secured transactions, areas which may be less familiar to some art professionals

The book also contains two Appendices on restrictions applicable to art and cultural property. Appendix A provides information about the type of restrictions (e.g. export or import restriction) applicable to art and cultural property and their legal sources (national laws and regulations), and categories of objects to which these restrictions could apply. The second list categorizes restrictions according to market sectors (e.g. for Impressionist and Post-Impressionist, restrictions could apply on materials, on exports or on imports)

The first chapter “Art and Cultural Property in the Law” is a good introduction to understanding how art has been defined throughout centuries. The role of art in our societies has changed throughout time and discoveries of new techniques or materials and so has its definition. While this chapter is more conceptual at first, the author is able to quickly guide the reader towards legal status of art. For the author, the legal definition of art is essential for at least two areas: customs classification and copyright and intellectual property.

The second chapter is dedicated to intellectual property and copyright laws. The author uses cases in order to illustrate the challenge of ‘copyrightability’ and the purpose of infamous fair use doctrine and moral rights. The last section of this chapter concerns artists’ resale rights and sums up very well the origin of the rejection by U.S. copyright law and the difficulties to create or maintain a bill on resale royalty.

The third chapter explores the question of cultural property, a complex issue that has been first used in the 1954 Convention for the Protection of Cultural Property in the Event of Armed Conflict (the “Hague Convention”). While the Hague Convention includes both movable and immovable cultural property, it applies only during periods of armed conflicts.

In 1970, the UNESCO Convention, eventually addressed the issue of protecting cultural property in peacetime and targeted specifically moveable cultural property which makes it more relevant, according to the author, to art trade and transactions discussed in his book.   As explained by the author, source countries (“countries that were the location of ancient civilizations, many of which are former colonies”) started to advocate for a convention that could regulate the removal of some objects during colonials period by market countries (“important centers of the art and cultural property trade […] which are former colonial powers”). Nevertheless it seems that the effectiveness of the 1970 UNESCO Convention was put into question, those doubts led to the creation of the UNIDROIT Convention on Stolen or Illegally Exported Cultural Objects adopted in 1995. This Conventions applies to international claims for the restitution of stolen cultural object and the return of cultural objects, but it has been ratified by less states than the 1970 UNESCO Convention meaning that “it has limited applicability for most art transaction”.

One of the most famous examples of a continuing dispute over tangible cultural property concerns the Parthenon Sculptures (formerly called the Elgin Marbles). The Parthenon was constructed between 447 and 432 B.C.E and served originally as a temple to Athena. The temple was used for diverse purpose such as: a Greek Orthodox cathedral (5th century C.E, a Roman Catholic cathedral (in 1204), a mosque in 1458 or a military center in 1687. It suffered several destructions by fire and bombardments. Several sections of the book are dedicated to the dispute over the ownership of the Parthenon sculptures off and on since the 1832 Greece independence. Since Greece formally demanded for the Parthenon sculptures return in 1982, England and Greece decided to use cultural diplomacy instead of trial threats. A disagreement still remains concerning Lord Elgin alleged permission to remove the sculptures. In 1799 Lord Elgin was appointed British ambassador to the Ottoman central government in Constantinople, and supervised “a team of artisans and workmen to travel to Athens to make drawings and plaster casts of Greek sculptures and architectural fragments”. The outcome of this venture was that upon the obtention from the Ottoman government of document of permission for access to the Parthenon, part of the sculptures were removed from Athens and later brought to the British Museum in London. The obvious legal issues concern the issuance of the alleged removal permission of the Ottoman government. If the two countries achieve to agree on the return of the sculptures several issues would persist such as the running of statute of limitations and implementation of international laws.

Another interesting reference in the chapter on cultural property concerns Native American cultural heritage and its protection by US domestic laws. The Kennewick Man saga shows how much a legal definition can sometimes be too rigid in an evolving world of historical discoveries. After the discovery of a human skull and bones near Kennewick, Washington, on federal lands, the remains were sent first to an anthropologist for analysis and upon discovery that they were approximately 9,000 years old, further scientific studies were planned. Five tribal groups opposed these further studies and demanded the remains to “be turned over for reburials”. The scientists excavated the Kennewick Man based on the 1979 Archaeological Resources Protection Act (ARPA) and argued that it was not “Native American” remains according to the 1990 Native American Graves Protection and Repatriation Act (NAGPRA) governing among other things the treatment, repatriation and disposition of Native American human remains. A claim was brought in the US District Court for the District of Oregon to avoid restitution. It was held in 2004 that Kennewick Man’s remains were not “Native American” human remains according to the NAGPRA. Last but not least, a publication in the scientific journal Nature determined that according the genetic sequencing of Kennewick Man’s genome, it was “more closely related to modern Native Americans than to any other living population” and especially to the Colville Tribe, who claimed formerly for the restitution of the remains. The Kennewick Man is still currently in the custodial care of the Burke Museum in Seattle.

Chapter five and six respectively called “Questions of Authenticity and Questions of Titles” provide essential definitions that help novice readers not to confuse attribution and authenticity, or provenance and provenience. Authenticity of an artwork has always been subject to suspicion and leads more and more to expensive and largely media-covered litigations where the art authentication experts are left to the anger of purchasers or owners. Just this year, Sotheby’s auction house filed two lawsuits, one in the UK and one in the US to recover funds from the consignor’s of artworks they found to have been forgeries. Ray explains very well in chapter five the strange fascination that art theft and forgery create in the media and among the public, analyzing extensively the story and proceedings of the Knoedler & Company case.

In the chapter concerning art ownership and title, the author decided to tackle the issue of stolen art, first explaining the moral aspect of the question that has been a classic subject of a large number of movies (Gambit in 1966, remade in 2012, or How to Steal a Million also in 1966). As stated by the author, most of the time this subject is romanticized but in reality involves much more complicated issues with the common law principle of nemo dat and problems of statutes of limitation.

The author very appropriately dedicated a fair amount of pages on the issue of Nazi-Looted Art providing a good explanation of the various challenges: emotional, geographical and time-related and the legal basis for past and current cases. That said, a more complete review of art law cases involving Nazi-era looted restitution cases is in order.

The three last chapters are the most technical and also challenging chapters of this book, for non-finance trained professionals. The author addressed art sale transactions from the standpoint of both the U.S. Uniform Commercial Code (UCC) and the UN Convention on Contract for the International Sale of Goods (CISG). This part is very useful as the author makes straightforward comparison between the two legal documents and demonstrates their respective benefits and weakness. Chapter 9 “Secured Transactions” treats art as a “quasi-asset class for investment” and discusses, once again, the lessons from the following cases: Lindholm v. Brant 925 A.2d 2048 (Conn. 2007) and Salander O’Reilly Galleries, LLC bankruptcy cases to illustrate his explanations. The last short chapter deals with international trade in art and especially exports restrictions and preemptive rights. The example of the sale of the 1733 portrait of Ayuba Suleiman Diallo by Hoare of Bath at Christie’s in 2009 is given to show the limitation that a country can impose on the exportation of an artwork that is considered  a national treasure. It was requested from the buyer: the Qatar Museums Authority to submit a request for an export license to which the UK exercised its preemptive rights in order to enable British museums to acquire it. Eventually the National Portrait Gallery and the QMA reached an agreement for a loan of the painting.

The author decision to provide a selection of case decisions and legal materials, helps the readers to put some more abstract concepts back in context or remember famous cases concerning forgeries. Nevertheless the book could become quickly outdated on these points because of new developments in pending cases or evolution of laws.

On the book shelf of the art law publications Art and Business appears an up to date and an informative reference that offers simultaneously to its readers a very good introduction on basic issues rose by art law and the art business, and thanks to the author expertise, more specialized chapters concerning art transactions and sales, that will provides great sources for less experienced lawyers. Ray’s book is clear, and provide numerous and well-researched footnotes to help readers to deal with a particular topic in depth. Published by the American Bar Association (ABA), despite its price ($199.95), this book makes a valuable addition to a reference library for any art professionals.

Disclaimer: This article presents general information and is not intended as legal advice or substitute to reading Art and business.

*Marine Leclinche is a Spring 2017 Legal Intern with Center for Art Law. She is a LL.M candidate at Benjamin N. Cardozo School of Law. She earned a degree in Intellectual Property Law in France, and now focus her studies on art and fashion law. Ms. Leclinche can be reached at leclinch@law.cardozo.yu.edu.

WYWH: Introduction to Estate Planning for Artists in “Your Art Will Outlive You”

 

By Heather DeSerio

The subject of what life keeps in store for artists’ legacy when they are no longer around to protect their works is of increasing interest to auction houses, galleries, heirs and artists themselves. On January 11, 2017, the New York Foundation for the Arts (NYFA) in conjunction with the New York State Bar Association’s (NYSBA) Entertainment, Arts, and Sports Law Section (EASL) Committee on Fine Art and NYSBA’s Pro Bono Committees hosted an event, entitled “Your Art will Outlive You- How to Protect It Now,” which took place in Dumbo Brooklyn, New York. The panel of lawyers and art professionals presented a two-hour overview to artists and art professionals about what an artist can do to protect their work now, rather than wait until after they pass away.

screen-shot-2017-02-01-at-10-20-55-am

Source: Heather DeSerio

 

There were six key speakers: Judith B. Prowda of Sotheby’s Institute of Art, Carol J. Steinberg of Law offices of Carol J. Steinberg, Elisabeth Conroy of Edward W. Hayes, P.C., Declan Redfern who is a Partner at Kayser & Redfern, LLP, Peter Arcese, practicing T&E attorney and an Adjunct Professor at the NYU School of Continuing and Professional Studies, and Alicia Ehni, an artist and Program Associate at NYFA Learning. The majority of those in attendance were artists, with at least one conservator and a recorder for estate processing. NYFA, a nonprofit organization with a mission to “empower emerging artists and arts organizations across all disciplines at critical stages in their creative lives and professional/organizational development” created its own “Take Aways” for the event that can be found here.

While artists tend to shy away from legal topics, this sold-out event was clearly of interest and tackled such fascinating and complex topics as will drafting, estate planning for artists, establishing artist foundations, gifting artwork while living, copyrights, and forming artist cooperatives. The following is a summary of the discussion that took place.

  1. Wills

Elisabeth Conroy, an Associate at Edward W. Hayes, P.C., started the stimulating presentation on estate planning for artists by giving an introduction to what a will is and followed up by providing the requirements for a valid and enforceable will. The five requirements are that (1) the will must be in writing; (2) must be signed by the person whose will it is, which is called a testator and they must be 18 years old; (3) signed at the end of the will; (4) published, meaning that there is an acknowledgement that this is your last will and testament; and (5) at least two witnesses must sign in the presence of the testator within 30 days of one another. Additionally, she spoke about choosing an executor of the will, types of bequests, joint wills, how to store and update a will when major life changes occur such as marriage, divorce, and children. Conroy mentioned that while an attorney is not required to create a will, it may be a good idea because using an attorney to draft and execute a will creates a presumption of the will’s validity. She also highlighted the commonly overlooked importance of having a living will and a health proxy, because designating someone to make health decisions if a person becomes incapacitated is a good idea. She ended her remarks by recommending that people should execute a Health Insurance Portability and Accountability Act of 1996 (HIPAA) authorization so the person that serves as the health proxy will also have access to a person’s medical records to make important life decisions.

  1. Estate Planning for Artist- Trusts, Foundations, Fiduciaries, and Valuing Art

Peter Arcese is a trusts and estates practitioner who also serves as an Adjunct Professor at NYU School of Continuing and Professional Studies. He delivered quite an impassioned and intriguing presentation about estate planning for artists and why it is unique for artists. He highlighted various types of trusts that exist. Arcese repeatedly stressed the importance of appointing a qualified fiduciary. A qualified fiduciary means the fiduciary should understand what the artist’s intentions are and be competent enough to deal with auction houses, the artist’s family, lawyers, and accountants. Arcese also noted that a fiduciary should be savvy and knowledgeable enough to make decisions that are in the best interest of the artist and can deal with complex issues that may arise pertaining to funding the foundation and overseeing the administration of the estate. In addition, it is important that the fiduciary does not engage in self-dealing. This is so that the artist would avoid many problems that other artist foundations have faced such as was illustrated by the infamous Rothko case.

Art valuation is a complex topic that was briefly discussed on several occasions. Arcese told the audience about the important benefits of achieving discounts for the benefit of taxation of the estate when an artwork is sold. He pointed to the David Smith case and the DeKooning case.

One of the questions asked during the event was about the availability and reliability of art appraisals for lesser known artists. He responded that a person should try to find a highly qualified individual with a good reputation to appraise the artworks and give an estimate. This can usually be done by an auction house or qualified appraiser. There was no definitive clear answer to a follow-up question about whether the appraisals are correct, but, Arsece told the audience, “It should be based on the fair market value or what one would get at auction.”

Funding the Foundation:

Artist foundations have got their initial funding in ways such as:

  1. Borrowing money: The Adolph and Ester Gottlieb Foundation borrowed the first $10,000 to make grants and started with nothing else.

(*The Adolph and Ester Gottlieb Foundation was the first foundation to give money to artists.)

  1. Funded by select gifts of art to the estate to sell off, and the proceeds are used to help get the initial funding started.
  2. Facilitate exhibits of works in estate’s collection.
  3. Publish a catalogue raisonné of the artist’s works.
  4. Licensing of the copyrights in accordance with the artist’s wishes.
  5. Life Insurance Policy: The funds received can be directed to help fund the establishment of the foundation to help pay for the initial cost of the foundation.

During Arsece’s abridged discussion about artist foundations, he emphasized key points. First, how important it is for all artist to leave clear directions about what to do and directions that layout the vision for the foundation. Next, he pointed out that foundations can be created during the artist’s lifetime or created upon death. In conclusion, Arsece reviewed the types of foundations: there are public foundations, which are based on the corporation structure, and there are also private foundations that are run by family members or named individuals by the artist.

Many questions from the audience concerned matters of funding the artist foundation and tax issues. One question specifically asked if it is a good idea to create a trust to minimize taxation in comparison to having a will. The answer was a resounding yes from several the panelist that confirmed that a trust can save on taxes. There is a one-time credit that the IRS Code allows of up to $5,500,00.00 of the value of artwork that is not subject to taxation. This exempt amount of artwork can be set aside in a trust and will not be taxed again. The monetary value of artwork is determined from the date when the artist passes and the appreciation in value of the work is free of taxation. It is advised to consult an attorney that is experienced in setting up trusts so that they tailor the plan to accomplish whatever tax savings are best depending on the individual’s goals.

  1. Artist that Gift Artwork During Artist’s Lifetime

Declan Redfern, a partner with Kayser & Redfern, LLP, with more than three decades of Trust & Estates experience including litigation both in the U.K. and the U.S. Redfern drew upon his experience to illuminate another important aspect of artist devising their property during their lifetime by elaborating on the differences between gifting an artwork during the artist’s lifetime (inter vivos gift) and how the copyright exists separately from giving of the physical work itself. An artwork’s copyright does not automatically transfer just because the physical object is gifted to someone.

When a living artist gifts artwork to someone, there are three general requirements that must be established to prove that it was an inter vivos gift: First, there has to be an intent to divest the title by the donor, second the acceptance of artwork by the donee, and third, delivery of work from the donee to the donor. Once all three requirements have been established, then an inter vivos gift has been perfected and it is no longer part of the artist’s collection.

Redfern highlighted several issues with gifting. Each example indicated problems with trying to figure out what happened with the gift during the deceased artist’s lifetime when there was conflicting circumstances, conflicting documents, or the artist’s intent was not clear. These examples illustrate that it is imperative for artists to make their intentions clear in written document that clearly describes their intentions at the time when they gift is given and indicates what rights are intended to be gifted.

He concluded his presentation by talking about the Deadman Statute. It is an evidentiary rule that applies in court when trying to establishing if a gift was actually gifted because one cannot rely upon what a Deadman told a person. There must be documentation that is notarized by a disinterested party to defeat a Deadman Statute. This also helped reinforce the idea about getting things in writing and even notarized by disinterested parties so that a person can establish that an inter vivos gift was intended to be given by the artists and if any copyrights were granted with the inter vivos gift besides possession of the artwork.

  1. Copyright Law

Carol J. Steinberg, one of the organizers of the program as well as a speaker, discussed copyright law because these rights are important for artists to consider when a person is creating an estate plan for the artist’s artwork. She stressed the importance of understanding that the law grants artists six set of copyrights, which exists separately from the physical artwork itself. Under the Copyright Act of 1976 Section 106 the six different rights are:

  1. the reproduction right;
  2. the right to prepare derivative works based upon the copyrighted work;
  3. the distribution right of copies or phonorecords;
  4. the right to perform the copyrighted work publicly;
  5. the right to display the copyrighted work publicly; and
  6. for sound recordings, the right to perform the work publicly by means of a digital audio transmission.

Steinberg also informed the audience that artists can choose to retain or assign the six different copyrights independently from one another. The assignment can be done while the artist is still living or upon the artist’s death in a testamentary document that indicates the artist’s intentions for the artwork’s copyrights.

She tied it all together by mentioning that the copyrights are commonly administered after the artist death by the artist’s foundation or estate in accordance with the artist’s wishes as indicated in the artist’s testamentary documents. This is an important remark because with the rise of the internet there has been an increase in litigation involving issues such as the unlicensed reproduction, distribution, and creation of derivative works involving items such as a catalogue where the artwork is reproduced in a picture or a reproduction of the artwork is displayed on a picture on a website that features the artwork. Sometimes this occurs when owners of the physical artwork fail to realize that they need a license from the artist’s foundation or artist’s estate which are in charge of administering the artist’s copyright in a work of art after the artist is deceased. This licensing of an artwork’s copyright is necessary to ensure that another is not infringing on the artist copyrights that are still retained by the artist’s foundation or estate.  

  1. Artist Cooperatives

Alicia Ehni, the Program Associate at New York Foundation for the Arts, suggested to the audience of the program that artists should form cooperatives consisting of artists, curators, collectors, and other key players in the art world. This would benefit artists because it would  get their work seen by other professionals in the art world, which in turn gives them the exposure they need to potentially get placed in shows and museums. An increase in an artist’s visibility and prominence in the art world helps artists to increase their collectability and raises their value in the art market. A trickle effect results in more work being produced by an artist as they sell more work. Once an artist increases their work output, then there is a greater need for the artist to keep proper documentation about the work they produce and track the work’s provenance. This is because documentation is helpful in the art resale market and for authenticity. Unfortunately, artists and their foundations or estates are plagued with problems such as authentication of artwork, lack of documentation by the artist while they are living, and the need to generate income from the artist artwork to fund the artist’s foundation.

Authentication of artwork is a problem when there is a lack of record keeping performed by the artist during their lifetime. This is a highly controversial topic because artist estates and authenticators have faced several lawsuits about artworks that were improperly attributed to an artist that turned out to be forgeries. Thus, authenticators and artist’s estates tend to shy away from authenticating artworks since they do not want to be held liable for wrongly authenticating an artwork. One thing that could help with this authentication problem is for living artists to be proactive in creating a method of systematically documenting their artwork. This protective step is commonly overlooked by artists, which could create problems down the line because no one else is better qualified to determine which works should be attributed to the artist then the artist themselves.

An artist should regularly document their work by taking photos, creating a numbering system, record when an artwork is sold and to whom it was sold. Also, an artist may want to keep a list of where the artwork is stored or consigned, and provide information about the artworks materials and dimensions. Thorough records created during the artist’s lifetime would facilitate the artist’s estate management of the collection and distribution of the inventory if and when the foundation in charge of the works needs to sell authenticated works. Therefore, artists should be prudent and begin this practice at the beginning of their career to ensure their legacy is protected.

Conclusion:

“Establishing the Artist Foundation” is a vital topic in the art industry as demonstrated by the challenges encountered by high-profile foundations such as the Rothko and Warhol Foundations. Many artists, galleries, and auction houses are transforming their business strategies by incorporating artist management to help meet the needs of aging artists. Crassly put, dead artists are big business for sales, exhibits, and catalogue raisonnés. As mentioned by Robin Pogrebin in her New York Times article, “Decision Time For Aging Artist,” aging artists such as Chuck Close are beginning to think about planning for their families now rather than simply leave it to a gallery to manage their estate as artists commonly have done in the past. Artists are taking an active role in establishing a plan for their work to curtail many of the problems other artist’s estates and foundations have faced. In deciding how to develop a plan for the artist’s artworks the legacy, preservation, copyright, licensing, establishing an artist foundation, establishing a trust, and the selection of a qualified fiduciary are all important elements that merit additional education and planning to ensure the will of the artist is honored posthumously. The artist should consult a qualified and experienced attorney to establish a plan and guide them through the process of estate planning for artists.  

Select Sources:

  1. In re Rothko, 84 Misc. 2d 830, 379 N.Y.S.2d 923 (Sur. Ct. 1975), modified, 56 A.D.2d 499, 392 N.Y.S.2d 870 (1st Dep’t), aff’d, 43 N.Y.2d 305,372 N.E.2d 291, 401 N.Y.S.2d 449 (1977); on remand, 95 Misc. 2d 492, 407 N.Y.S. 2d 955 (NY Sur. Ct. 1978).
  2. Simon-Whelan v. Andy Warhol Found. for the Visual Arts, Inc., No. 07 CIV. 6423 (LTS), 2009 WL 1457177 (S.D.N.Y. May 26, 2009).
  3. Jennifer Maloney, The Deep Freeze in Art Authentication, April 24, 2014 available at https://www.wsj.com/articles/SB10001424052702304279904579518093886991908

About the Author: Heather DeSerio (NYLS, JD candidate, Class 2017) is a Spring 2017 Legal Intern with the Center for Art Law. In her studies, she is concentrating in Intellectual Property Law. Prior to law school, she worked as a fine artist and received a Bachelor of Fine Arts in Painting from Ringling College of Art and Design. She can be reached at heather.deserio@law.nyls.edu.

In Other News: Allegory, Fakes, HEAR Act, Synergy and Street Art

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Follower of Pieter Bruegel the Elder, “The Blind Leading the Blind” (circa 1600). Auctioned by Sotheby’s at the Master Paintings & Sculpture Evening Sale (Jan. 25, 2017). Estimate: $100,000 – 150,000. Hammer w/ buyer’s premium: $137,500.

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Old Masters Faked The 2011 private sale involving a “modern forgery” was undone five years later, when Sotheby’s auction house recognized that it sold the work under a false attribution to Frans Hale. The handsome sum of about $10 million dollars paid for the “Portrait of a Man” was reported as reimbursed by the auction house to the buyer in 2016. In January 2017, Sotheby’s again made the news for denouncing authenticity of another painting and naming its consignor a defendant in a breach of contract complaint. The second painting, known as “St. Jerome” by an old master from Italy, has been tested by a lab Sotheby’s acquired in 2016 and reported as containing modern pigments. Funds at stake from the sale of “St. Jerome” – over $650,000.

The existence of fakes in the art market is no news. The steps taken by different players (private and public actors) to address claims and evidence of misattribution and fraud are newsworthy.

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Eyes on HEAR Act  In January 2017, Carter Ledyard & Milburn LLP issued an advisory regarding the new federal law, Public Law No. 114-308, known as the Holocaust Expropriated Art Recovery (HEAR) Act extending the statute of limitations for claims to Holocaust-expropriated art. See full text here.

From the advisory: “The HEAR Act operates by displacing individual American states’ statutes of limitations with the new six-year deadline. The HEAR Act does not create a federal right to recover artwork, and does not create a uniform federal statute of limitations for all Holocaust art claims. Claimants must still allege a right to recovery under existing state law, based on theft or conversion. Although Congress’s stated intention is for these disputes to be decided on the merits, because of an exception set forth in the law, the new law will not end quarrels about which state’s law applies. . . .”

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Beyond the Artmarket Room for meaningful artist/lawyer relationships are explored in an essay co-authored by Sonia K. Katyal and Joan Kee for Hyperallergic entitled “How Art and Law Can Work Together Beyond the Marketplace” (Jan. 12, 2017).

Excerpts from the essay: “… More recently, lawyers and artists alike have struggled over competing claims to freedom of artistic expression and those made in the name of defending intellectual property rights. … The questions raised regarding racial difference, inequality, and appropriation are difficult ones, and, over time, it has become increasingly urgent that we engage with both the languages of art and law to make sense of how to answer them.

Today, the need for these conversations — particularly as they address non-white, female, queer, and transgender artists — becomes particularly acute in the wake of Donald Trump’s election, who has demonstrated an explicit intent to perpetuate unequal treatment before, and despite, the law. How does the art world respond, and how can art lawyers support the need for a critical response?…”

 

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Tasseography The newly minted President of the United States is making the news and inspiring artists to apply themselves. In “A Tremendous Roundup Of Street Art Ridiculing Donald Trump” (Jan. 27, 2017) and “‘It’s going to make art great again’: the street artists taking on Trump” (Jan. 25, 2017), The Huffington Post, The Guardian and others have picked up on the fact that “street artists have a lot to say about President Donald Trump….”

“Legs”: Art Law Issues Stand Out in a New Documentary

By Adelaide Dunn*

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Film still from Legs: A Big Issue in a Small Town, showing Larry Rivers, “Legs”. Source: ReelGA.com

In Sag Harbor, NY, a fiery local debate over a prominent artwork, which started in 2008 and still rages on, has led residents to consider exactly what it means to live in a small town with a big personality. Legs: A Big Issue in a Small Town (2015) is a documentary by Sag Harbor-based filmmaking power couple Beatrice Alda and Jennifer Brooke, which tells the heartfelt and amusing story of a giant pair of legs and a multilayered community struggling to define its identity (See trailer: https://vimeo.com/162895102)

A haven for artists, intellectuals and freethinkers, Sag Harbor is situated at the center of New York’s Hamptons – where a long list of creatives, including Jackson Pollock and Willem de Kooning, have lived and worked. But, as the documentary reveals, the town also has a rich whaling history and toytown vibe that its self-described “natives” strive to preserve.

The sculpture at the heart of the issue is a large pair of legs, created by Larry Rivers (1923-2002). A known provocateur, Rivers “had the audacity to challenge abstract expressionism” by combining figuration with abstraction and parodying the old masters. (Jackson Pollock once tried to run over one of Rivers’ sculptures in East Hampton.) Visitors had to walk through the middle of the Legs to enter Rivers’ studio nearby in the town of Southampton. Some were amused and others annoyed, sowing the early seeds of discord surrounding the Legs.

Ruth Vered and Janet Lehr – a couple of eccentric gallerists – purchased a second iteration of the Legs in 2008 and mounted them to the side of their home, a converted, whitewashed Baptist church. At once quirky, racy and Pop, the sixteen-foot pair of fiberglass Legs are mysteriously androgynous, poised in a carefree prance, and adorned with garter-like stripes. Loved by some and loathed by others, the Legs quickly became an iconic local landmark and the subject of a protracted legal dispute, beginning in 2008 and continuing today.

The Case

Soon after the installation of the Legs, Vered and Lehr’s neighbors complained to the Sag Harbor Zoning Board. The Sag Harbor Village Building Inspector subsequently concluded that they needed a building permit, and the Sag Harbor Village Attorney issued an opinion stating that the Legs were an “accessory structure” in violation of the requirements of the Zoning Code of the Village of Sag Harbor (Applebome). Most notably, the Legs are located a foot from the property line where 35 feet is required (Sag Harbor Online).

After the Building Inspector denied Lehr and Vered’s application for a building permit in 2010, in 2011 they petitioned the Sag Harbor Zoning Board of Appeals to allow them to keep the Legs where they stand. The Board denied their application without prejudice. A string of public hearings followed from 2011 to 2012. Lehr and Vered were supported by dozens of Sag Harbor residents who argued that the Legs are a work of art that should remain, as well as the Larry Rivers Foundation, which produced a petition signed by 400 local residents arguing the same. Neighbors continued to call for the removal of the sculpture (Menu).

In 2012, Lehr and Vered’s attorney argued before the Board that this is a unique case that will not create a detrimental zoning precedent, because Larry Rivers has an important place in the locale’s artistic history, and because the amount of support Lehr and Vered have received indicates that there is serious value to the Legs remaining in their prominent position in the Village. Moreover, the Legs should not be dealt with under the Zoning Code because they are a form of expression protected under the First Amendment. He made the point that other forms of expression, like flag poles and bird baths, are not regulated by the Zoning Code. Further, public health, safety and welfare are not impeded by the sculpture (Sag Harbor Online).

The Board rejected those arguments, holding that the issue of art was a red herring, and that a work of sculpture can still be subject to zoning laws. But the Board nevertheless allowed aesthetics to affect its decisionmaking. It stated that the Legs are an undesirable change in the character of the neighborhood, and their location in the historic district of Sag Harbor is contrary to the Village’s goals of preserving its historic features. Vered called the Board a “bunch of chickens” and appealed the decision (Sag Harbor Online).

In 2015 the New York State Supreme Court in Riverhead upheld the Board’s ruling that the Legs are a structure that is subject to the Zoning Code. The Court dismissed the issue of the Legs’ status as a work of art, reasoning that “what is art?” is a “question philosophers from Plato to Arthur Danto have debated, [which] is best left to their province” (Steindecker). But for now, the Legs remain standing. With characteristic vigor, Lehr and Vered have appealed the New York Supreme Court’s decision and are not removing the Legs until they are forced to do so.

The Film

In preparation for the film, Brooke and Alda interviewed an impressive diversity of Sag Harbor residents and asked for their opinions regarding the Legs. Interviews with artists, musicians, critics, lawyers, sociologists, café owners, local politicians and other residents offer earnest perspectives. For some, the Legs are a reassuring symbol that Sag Harbor has a sense of humor and a creative spirit. Responses range between “live and let live” and “who cares?”. For others, the Legs are an unwelcome punctuation of the town’s quaint, historical aesthetic. Sag Harbor is a town facing significant change, due in part to its popularity as a vacation spot for New York City’s upper crust. To the “native clan”, the preservation of Sag Harbor’s look is a surrogate for the preservation of its “culture” – a concept that is also up for debate. Behind this seems to be an unspoken jibe against whom they see as foreign art snobs and pretentious Manhattanites invading their neat world.

The film’s conversation touches upon three themes common to art lawsuits (each analyzed below): (1) what constitutes art, and who is qualified to make that call? (2) the implications of a community rejecting an artist’s expression, and (3) the tendency of art lawsuits to provide platforms for broader social inquiries and new creative expression. Legs uncovers the universal complexity of social dynamics in small towns and queries how we tolerate our neighbors’ differences. This writer had the pleasure of seeing Legs “in situ”, at Sag Harbor’s Bay Street Theater, as part of the 2016 Hamptons International Film Festival. The colorful cast of talking heads could be seen – and heard – during the screening and the following Q&A with Alda and Brooke.

Art Law Theme #1: What is Art?

In its decision regarding the 2015 appeal, the New York State Supreme Court in Riverhead side-stepped the problematic conundrum of “what is art”, choosing not to behave like art critics. Indeed, this question has preoccupied the contemporary art world since the readymade movement, originating with Marcel Duchamp’s famous urinal and carrying through into noted contemporary oeuvres like those of Jeff Koons and Dan Flavin. Appropriating a readymade consumer object, placing it within an art gallery and elevating it to the sacred status of “art” causes the viewer to question the validity and sincerity of “art” as a concept. This interpretive tension lies beneath a great deal of contemporary art, readymade or other. It is no wonder contemporary art that creeps into courtrooms causes such anxiety. The law depends on stable categories and analogies that enable binary, adversarial approaches to problem solving. Contemporary art, at its very core, aims to resist the notion that there can be a right answer, and that “art” lends itself to a stable definition.

The classification of artworks as everyday objects – the reverse of the readymade – is an occasional conceptual defunct of the law. The decisions of international customs authorities provide two interesting examples that can be compared with the New York State Supreme Court’s decision regarding the Legs.

The first involves the late Dan Flavin. Flavin is celebrated for his vibrant and dramatic assemblages of fluorescent tubes of strip lighting, which have exhibited at noted galleries and museums worldwide. But the European Commission ruled in 2010 that Flavin’s works should be classified for tax purposes as “wall lighting fittings”. This means that any works of the American artist being imported into the EU are liable to full value-added tax, which is 20%. If his works were treated as sculpture, they would only be liable to 5% (Kennedy).

Constantin Brancusi, a key inspiration for Flavin, is coincidentally also a victim of philistine customs rhetoric. When none other than Marcel Duchamp brought a selection of Brancusi’s sculptures, including his iconic Bird in Space, from Paris to New York City in 1926, a customs official (himself an amateur sculptor) refused to call it art (Gayford). To qualify as “sculpture”, works had to be “reproductions by carving or casting, imitations of natural objects, chiefly the human form” (Cleary).

Because Bird in Space was an abstract rendition of the form and motion of a bird, missing representational signifiers like wings and a beak, the work was relegated to the category of “Kitchen Utensils and Hospital Supplies”. For that reason, 40% of the work’s value was levied against it, while qualifying sculptures were free from import taxes. But a thirteen-month appeal, which involved Brancusi testifying as to his painstaking production method, and supporting testimony from Jacob Epstein and Edward Steichen, led to a reversal (Brancusi v. United States). This was the first U.S. court decision recognizing that non-representational sculpture could be considered art (Martin).

As these examples and the case involving the Legs reveal, artists’ unique expressions can be undermined and injustices can occur when challenging artworks are categorized as mere objects.

Art Law Theme #2: the People v. the Artist

Furthermore, it seems democratically significant that the small community of Sag Harbor can advance such a critical voice regarding aesthetics and what is, in the words of one of the film’s interviewees, a “frontal challenge to private property”. It is also significant that those in favor of the Legs’ removal amassed such lobbying power. This is because there is a general assumption in the law that the public benefits from having free access to artworks. For example, according to moral rights rhetoric, artworks present references to history and the contemporary that influence present and future generations. Those references become part of a community’s shared vocabulary (Hansmann & Santilli, 106). And in copyright and First Amendment philosophy, society’s uncensored marketplace of ideas is fed by the public consumption of creative works, no matter the content. A diversity of expression in the marketplace of ideas strengthens democracy, since creative works have political and social implications (Netanel, 159).

But situations like that in Legs allow us to deconstruct these assumptions as out of step with the nature of contemporary art. The famous case involving the removal of Richard Serra’s sculpture Tilted Arc from the Federal Plaza in Manhattan provides a useful analogy. The federal employees and area residents that argued for the removal of the sculpture – a 120 feet long curved steel wall – mainly protested the imposition of an austere and challenging aesthetic on them (Duboff, Burr & Murray, 337). Despite testimony of numerous art world amici, including Keith Haring and Claes Oldenburg, arguing that dismantling a site-specific work is equal to destroying it, the Court ordered the removal of Tilted Arc. Like with the Legs, the Court justified its decision with practical considerations, such as Tilted Arc’s obstruction of police surveillance and attraction of rats (Serra v. United States General Services Admin). The removal was said not to be content-based and not a violation of Serra’s right to freedom of expression.

Both the Legs and Tilted Arc illustrate how, when sculptures with unstable meanings are superimposed onto the adversarial legal system, artificial binaries can shape trial narratives. For Tilted Arc, that binary manifested as the people versus the artist. Similarly, the Legs dispute pitched regular people against the art world.

Legs captures well the contrasting personalities driving the debate. The disgruntled neighbor who lodged the initial complaint with the Zoning Board receives considerable screen time. Poised within her plush heritage home, she labels herself the representative of “the neighbors who have to look at [the Legs] everyday”, calling them an “eyesore”. During the screening, her scathing remarks were met with laughter and lighthearted jeers from the audience.

Vered – unapologetically an art world archetype – makes outspoken and emotive comments about her Legs that anchor the conversational flow. She mentions a tacky blow-up angel decoration in a nearby yard that she and Lehr found “offensive” but managed to tolerate. Citing the U.S. Constitution in her convictions, she opines, “freedom of speech is becoming freedom of hate”. Being somewhat inflammatory by nature, Vered’s response to the dispute was to install floodlights around the Legs that lit them dramatically each night.

One of contemporary art’s virtues is, of course, its resistance to widespread understanding and approval. But some critics have argued that contemporary art has become a collection of abstruse messages accessible only to art world denizens (Meeker, 218). The critic Adam Gopnik writes that contemporary art’s popular audience has been “displaced by a professional constituency” (Gopnik, 141). It is this alienation of regular people from the contemporary art world – accentuated by the legal adversarial system’s narrative binaries – that appears to have exacerbated the disputes behind the Legs and Tilted Arc cases.

Art Law Theme #3: A Platform for Broader Social Inquiries and New Creative Expression

A positive ramification of arts conflicts is that they allow people to play out their anxieties without resorting to violence. This provides a democratic platform upon which to reconcile different values and identities within a community. Stephen Tepper, a sociologist appearing in the film, offered an interesting theory on how democracy enables communities to engage in these “symbolic conflicts”. This leads to “ontological security”, or mental stability resulting from the coherence of one’s social life. Tepper is the author of Not Here, Not Now, Not That! Protest Over Art and Culture in America, which examines some 300 examples of arts conflicts and reaches these conclusions.

Indeed, Brooke and Alda utilized the dispute as a platform for discussing wider social tensions. The implicit hostility felt by different racial groups is shared. The homophobia experienced by a couple of Sag Harbor dads – who until recently were prohibited from being Boy Scout leaders – is told with candidacy and intimacy. Power dynamics between native residents and recent arrivals are told of. Though Legs concludes before the case is fully litigated, the discussion, according to one interviewee, is just as important as the resolution.

The best arts conflicts are those that result in new creative works. Christoph Büchel’s response to the Massachusetts Museum of Contemporary Art’s lawsuit against him was to make new art out of thousands of pages of discovery documents. Mass MoCA was asking the Court for the right to open to the public Büchel’s immense yet unfinished installation, “Training Ground for Democracy”. Büchel and his attorney called the museum’s refusal to give them confidential documents “censorship” (Kennedy).

Brooke and Alda similarly found good documentary fodder in the dispute. They named their goal in the Q&A as giving a “voice to the village”. Based on the heartfelt comments and interjections of Bay Street Theater’s attendees, they clearly succeeded. The filming and screening of the documentary seems to have constituted a catharsis for the community. While legal institutions make attempts at dispute resolution, Legs offers a more therapeutic process, which might be called dispute relief.

Conclusion

In all, Legs is a rich, meandering conversation that stands as a celebration of the Sag Harbor community’s passions – despite how different those passions can be. Viewers shouldn’t expect the drama and sensationalism that often comes with coverage of artistic debates and free expression matters. Though localized, the themes explored are universal to small towns, such that Legs will strike a chord wherever it screens. It has, in fact, had a successful first run of over 25 festivals, and the next stages of distribution should be just around the corner.

Vered and Lehr’s appeal will be one to watch. Despite the unfavorable decisions from the Zoning Board of Appeals and Supreme Court of New York at Riverhead, an appeal court may well see the situation differently. New York’s courts have in recent years become more adept at importing into their decision-making techniques of artistic analysis, awareness of the art world’s unique business conditions, and acknowledgement of new production techniques in the realm of contemporary art. In such cases, which often involve debates over artistic meaning and merit, the roles of art critic and legal advocate can be intertwined. It is likely that a court will be sympathetic to Lehr and Vered’s position and make a finding that their freedom of expression and private property rights triumph over zoning requirements and neighborhood complaints about aesthetics. More on this as the Legs saga continues.

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From the editors: A special screening of “Legs: A Big Issue in a Small Town” by the Center for Art Law as part of the 2017 “You’ve Been Served” series is planned for the Spring of 2017. Art law topics to be discussed in conjunction with the film will include VARA and NYS zoning laws.

 

 

References and Sources

*About the Author: Adelaide Dunn recently graduated with an LLM in Competition, Innovation and Information Law from the New York University School of Law. Before that, she completed a BA/LLB(Hons) in Art History and Law from The University of Auckland in New Zealand. Adelaide is particularly interested in the intersections of copyright, moral rights and the visual arts. She is currently doing intellectual property, entertainment and commercial law work as a law clerk for a solo practitioner in New York City. Adelaide can be reached at adelaide1dunn@gmail.com.