“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.

* * *

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.

 

Cuba on My Mind: Legal Implications of Accessing Cuban Art

by Lesley Sotolongo, Esq.Screen Shot 2015-01-09 at 9.10.55 AM

Following the rise to power of Fidel Castro in 1959, a declining economy made preserving Cuba’s cultural property and accessing contemporary artworks increasingly difficult. Because of the Communist regime, the U.S. embargo was ratified in 1962 causing Cuba’s cultural heritage to suffer and art works to be illegally exported into the U.S.  Furthermore, the embargo prohibited U.S. museums from exchanging information relating to its conservation efforts with the Cuban government. Despite the high demand for Cuban fine art worldwide, contemporary Cuban painters were not allowed to sell their paintings to the U.S. or to work with auction houses such as Christie’s or Sotheby’s. In fact, Cuban artists have basically no freedom of speech rights evidenced by recent arrests of more than a dozen artists and activists prior to their participation in an open-mic performance planned in Havana’s Plaza de la Revolucion. (Read about Cuban activists arrests in December 2014). Thus, access to Cuban artworks in the U.S. has been significantly curtailed due to the bureaucratic obstacles for both Cubans and Americans. Recently, President Obama has taken executive action to restore diplomatic ties with Cuba and has called on Congress to formally overturn its sanctions, effectively ending the 55 year embargo. Until Congress takes further action the embargo is still in effect.

Wilfredo Lam Exhibit (MA)Still, there have been some Cuban art exhibitions in the U.S. Last year, the McMullen Museum of Art at Boston College organized an exhibit titled “Wilfredo Lam: Imagining New Worlds” with works by this important Cuban artist contextualized as an international figure in 20th-century art history. Furthermore, Abel Barroso, Jorge López Pardo, J. Roberto Diago, Meira Marrero and José Toirac are the headliners of “Permutations: Contemporary Cuban Art at Pan American Art Projects” in Miami, FL. The show reflects on the various strategies that the artists use to comment on social and political realities in Cuba as well as in a broader global context.

In fact, Cuban pieces are increasingly sought out by collectors, fueling illegal exports of their works from Cuba. According to David D’Arcy writing for The Art Newspaper, a missing Havana painting discovered in a Miami art gallery last year increased the toll of works stolen from Cuba’s National Museum of Fine Art in Havana to 95 works. The theft of Eduardo Abela’s painting, Carnaval Infantil, was originally housed at the Museum of Fine Arts in Havana. Cuban officials from the National Council of Cultural Heritage stated that the works were cut directly from their frames while in storage, making it difficult to detect the theft. The statement made by the Cuban government indicated a willingness to work with proper authorities inside or outside of Cuba in order to alert museums, galleries, auction houses and others of similar thefts. This case is significant because art theft is relatively rare in Cuba given that museums are tightly guarded and artwork is usually inspected by the Cuban military officers before it leaves the country. The Cuban government has become increasingly aware of this problem and is anxious to find a solution to reclaim its valuable works. However, Cuba’s suffering economy and current laws in the U.S. make this a difficult task.

One legal exception makes it feasible for artworks to be exported from Cuba. Marco A. Gonzalez, Jr., Esq., a partner at Nicoll, Davis, & Spinella LLP, sat down with Center for Art Law to discuss some relevant U.S. law and the ongoing effects of the embargo. Gonzalez explained a little-known exception to the U.S. embargo for cultural assets. Under the Cuban Assets Control Regulations § 515.206(a) information and informational materials are exempt types of transactions stating in part,

“the importation from any country and the exportation to any country of information or informational materials as defined in § 515.332, whether commercial or otherwise, regardless of format or medium of transmission, are exempt from the prohibitions and regulations of this part except for payments owed to Cuba for telecommunications services between Cuba and the United States.”  31 C.F.R. § 515.206(a) (West 2013).

Under § 515.332, the term information and informational materials includes, (1) Publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, news wire feeds, and other information and informational articles. Specifically, artworks must be classified under Chapter subheading 9701, 9702, or 9703 of the Harmonized Tariff Schedule of the United States. Unlike cigars or rum, which are considered commercial products, the U.S. government classifies Cuban artworks as cultural assets, and thus it is legal for Americans to bring artworks that are included under this law into the U.S. However, this is not always a great idea because the crime of counterfeiting of works and falsifying authentication has become a problem in Cuba. Thus, travelers should be aware of the possibility that they might not be getting what they bargained for.

Since 2003, traveling to Cuba from the U.S. has been highly restricted and now President Obama wishes to ease those restrictions. Previously, only religious, educational, and cultural groups could legally travel to Cuba, and with specific permission from the U.S. State Department. Recently, there were several attempts in the 112th Congress aimed at rolling back the Obama Administration’s actions easing restrictions on travel and remittances, but none of these were approved. Several legislative initiatives were also introduced that would have further eased or lifted such restrictions altogether, but no action was taken on these measures.

Nevertheless, Americans still cannot simply book a flight and head to Cuba. In order to travel to Cuba the traveler must book the trip with a Cuban travel agency that has an official license from the U.S. State Department. While the tour may include stops at museums or historic sites, purely recreational activities such as visiting the gorgeous beaches are prohibited from tour itineraries. Thus, travel and bringing home artwork is possible with the exercise of caution.

Whether exported illegally or not, the fact is that Cuban art remains coveted despite the trade embargo that might very well be overturned in the near future. Thus, the art world awaits the feasibility of obtaining works created by Cuban artists not only to increase accessibility to Cuban cultural production in the U.S., but also to allow for repatriation of many stolen and misplaced works.

Sources:

Cuban Assets Control Regulations, § 515.

D’Arcy, David, “Stolen paintings from Havana turn up in Miami,” The ArtNewspaper (Mar. 2, 2014 ) available at http://goo.gl/R4wM73

About the Author: Lesley Sotolongo is an intellectual property attorney. She may be reached at Lesley.Sotolongo@law.cardozo.yu.edu.

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

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

By Elizabeth Lash, Esq.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sources and Explanations:

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

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

Are Iranian Sanctions Beneficial to Contemporary Art: When the Little Man Becomes the Big Man

Shadi Ghadirian, “Untitled,” 2000-2001.
Now represented by the Saatchi Gallery.

In the midst of international sanctions, social and political upheaval, and a failing economy, contemporary art in Iran in flourishing.  The cause of this surge is multi-dimensional.

In a country where it is estimated that half the population is under 25, modern young people are increasingly involved in the art scene.  Gallery openings attract crowds since they are one of the only social environments not regulated by government authorities. The under 30s flock to galleries, not to buy art, but instead to mingle in a free public space.  This change in audience has transformed contemporary art, and conseqentialy its prices.

Moir Shahroudy Farmanfarmaian, “Flight of the
Dolphin,” Mirror Mosaic, 2010.  Metropolitan
Museum of Art permanent collection. 

In order to bring in some revenue, galleries are lowering prices and encouraging the sale of small time artists. Iranian art is purchased not at huge auctions or brand name galleries, but simply out of pocket by small time collectors.

The lower prices have, however, attracted new international collectors who would would not normally invest in art. The Guardian reports that “the economy provides ground for young creatives willing to settle for smaller profits.”  Works that focus on the political and social climate following the 2009 election of president Mahmoud Ahmadinejad are particularly attractive to international buyers.

Contemporary Iranian art is now drawing international attention, culminating in 2012 with an exhibition at the Metropolitan Museum of Art.  The Met exhibit, “Contemporary Iranian Art from the Permanent Collection,” highlighted works that addressed “issues of identity, political and social concerns, gender, nostalgia, and cultural pride.”

Siamak Filideh, “Untitled” from series
Rotsam 2- Return, 2009.  Now in the
LACMA permanent collection.  

In Iran, younger artists who focus on contemporary culture are the winners.  Suddenly the roles are reversed and small time artists, the “little man,” have become the “big man.”  This leads to the question: Is political, economic, and social turmoil beneficial to contemporary art?

Sources: Metropolitan Museum of Art “Contemporary Iranian Art from the Permanent Collection,”  Sune Engel Rasmussen, “Iranian Artists Hit by Sanctions,” The Guardian, January 22, 2013.  Images from LACMA, The Metropolitan Museum of Art, and The Saatchi Gallery.