The Art Law Report

Providing timely updates and commentary on legal issues in the museum and visual arts communities

“Saving Africa’s Elephants Changing the Art Scene” last Tuesday with VLA New York

Posted in Customs, Events

I enjoyed a terrific panel discussion organized by Volunteer Lawyers for the Arts in New York Tuesday evening at Herrick, Feinstein LLP. Entitled “Saving Africa’s Elephants Changing the Art Scene,” the panel addressed the ramifications of this year’s Director’s Order that banned the import of African Elephant ivory for any commercial use, and restricted even further non-commercial use.

The panelists were Frank Lord of Herrick, Feinstein LLP, who moderated; David Freudenthal, Director of Government Relations, Carnegie Hall; Craig Hoover, Chief, Wildlife Trade & Conversation Branch, US Fish and Wildlife Service; Lark Mason, President, iGavel; Michael McCullough, Partner, Pearlstein and McCullough; and Hartley Waltman, Senior Counsel, Art Business, Christie’s.

Hoover began the discussion by addressing the policy behind the recent order. After two decades of population resurgence, elephant poaching has returned to record levels. His comments raise hard questions about how economics and law can, or can’t effect that kind of change, particularly so far away.

Michael McCullough, who is as knowledgeable about these issues as anyone I’ve encountered, talked about the problems that have followed the order’s enforcement and the proposed regulations under discussion. He was complimentary of Hoover and the Fish & Wildlife’s receptiveness to comments, but wondered if the comments shouldn’t have preceded the administrative action. He also discussed New York’s efforts to enact even more stringent laws, which raise serious preemption issues both because of the text of the Endangered Species Act, and the field preemption that those laws create.

The other speakers addressed the commercial side of the ban from their perspective.

It was an interesting evening. The Observer has some coverage here, too.

Conflicting Reports About Possible Acceptance of Gurlitt Bequest by Kunstmuseum Bern

Posted in Gurlitt Collection, Restitution, World War II

There have been multiple and conflict reports in the last 48 hours about whether the Kunstmuseum Bern had reached a decision to accept the inheritance from and appointment as heir by Cornelius Gurlitt. Gurlitt, who died in early May shortly after reaching an agreement with the Bavarian prosecutor concerning the 1,280 works of art seized from his apartment on suspicion of Nazi-looting connections, unexpectedly named the Swiss museum as the sole beneficiary of his will, and as his heir and representative.  Just last week, the news was that the Kunstmuseum had resolved to decide by late November, no later than six months after being advised of Gurlitt’s bequest.

Then yesterday the Sonntagszeitung reported that the museum had indeed reached a decision to accept the collection and the role (which would, presumably, extend beyond the 1,280 works taken from his Schwabing apartment in Munich, and also to the several hundred objects in Austria, which are beyond the reach of the Bavarians). Reuters took up the story in English, with the headline that “Swiss art museum to accept German hoarder’s paintings: paper.”

Today, the museum walked the story back in multiple Swiss publications (all in German, from what I have found so far). The Tages Anzeiger in Zürich has an article today entitled “Bern Kunstmuseum Denies Gurlitt Decision.” The article describes the Sonntagszeitung article as “premature and partially incorrect.” The museum stated that the foundation’s board (responsible for the museum) declined to comment, citing ongoing confidential conversations with both Germany and Bavaria about the handling of the case. Foundation President Christoph Schäublin was cited as fearful of being “overrun,” and therefor declined to make a public announcement, according to museum spokeswoman Ruth Gilgen Hamisultane in her communication to the TA. The Berner Zeitung followed suit in confirming the lack of an actual decision.

So as of today, the deadline remains November 26, 2014. We shall see as events develop.

 

Bavaria and Germany Move to Dismiss Gurlitt Litigation, But Raise Questions About Why They Are Resisting a Lawsuit Over Painting that Task Force Recommended They Restitute to David Toren

Posted in Gurlitt Collection, Restitution, World War II

To date, only one lawsuit has been filed in the United States related to the seizure from Cornelius Gurlitt’s apartment of some 1,280 works of art, a story that broke a year ago with the concern about the objects’ Nazi-looting connections via his father Hildebrand Gurlitt (the view here last winter was that the longer Germany failed to address the situation comprehensively, the more likely such U.S. litigation became).  That lawsuit, brought by David Toren, seeks the return of Two Riders on the Beach (Zwei Ritter am Strand), by Max Liebermann.  Germany and Bavaria moved to dismiss the case yesterday, which is particularly puzzling given that among the very few determinations made by the Gurlitt Task Force (in August), it is that the Liebermann should be returned.  The cynical view is that they are looking to forestall future claims, but it is past time for the painting to be returned.

Toren, a resident of New York, left Germany at age 14 in 1939.  His great uncle David Friedmann lived in Breslau, Silesia (now Wrocław, Poland).  The Nazis sought out and seized Friedmann’s art collection in 1939-40, including the Liebermann painting.  Toren seeks recovery under several theories, but they fall into two groups: the first is bailment, the other is wrongful possession.  The latter claims that he is the true owner, and that Germany is wrongfully in possession of the work.  Under common law, he could recover the painting, its value, or some combination.  In other words, if the work was his uncle’s, and he is his uncle’s heir, whoever has it now is wrongfully in possession.  The bailment argument rests on the idea that when Bavaria seized the paintings from Gurlitt—but without any assertion that Germany or Bavaria is the owner—it did so for the benefit of the true owners.  Thus, Toren argues, the seizure was a bailment that was breached when Toren demanded the painting back but was refused.

The recent motion to dismiss targets Toren’s assertion of jurisdiction under the Foreign Sovereign Immunities Act.  Countries, states, and other sovereigns are generally immune from lawsuits unless they either consent, or a statute abrogates that immunity.  28 U.S.C. § 1605(a) lists those potential exemptions from immunity.  Many art restitution cases rely on the “expropriation exception,” of § 1605(a)(3), where the property at issue was taken in violation of international law, and the sovereign is also engaged in commercial activity in the U.S.  The Altmann, Malevich, and Cassirer cases all rely on this, for example.

Toren relied on a different provision, § 1605(a)(2), which exempts the sovereign from immunity in a case:

(2) in which the action is based upon a commercial activity carried on in the United States by the foreign state;

or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere;

or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.

Toren alleged in the Complaint that Bavaria’s act of seizure was just such an “act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act cause[d] a direct effect in the United States,” specifically, that Toren was damaged in the United States when Bavaria refused to honor its bailment.

Germany and Bavaria have now challenged this assertion in three primary ways.  One, they argue, the Gurlitt seizure, while obviously an act outside the United States, was not “in connection with a commercial activity.”  Rather, they say, the seizure was a sovereign act in connection with Gurlitt’s currency and tax investigation.  Second, they dispute that Toren’s presence in the United States is sufficient to constitute the necessary “direct effect in the United States.”  Lastly, the defendants contend, the assertion of a bailment agreement is insufficiently pleaded to warrant further litigation. 

These arguments were hardly a surprise in an FSIA case, but one can’t help but wonder what it is all for in this case.  That is because nearly two months ago, the Gurlitt Task Force issued only its second public recommendation—specifically, that the Liebermann be returned to Toren.  Bavaria, for its part, agreed to follow the Task Force recommendations as part of its agreement with Gurlitt shortly before his death.  So even if, hypothetically, the Kunstmuseum Bern accepts its appointment as Gurlitt’s heir but then accuses Bavaria of having given back its (via Gurlitt) property, it would have no argument because it does no more than stand in Gurlitt’s shoes.  That is not to suggest that the Kunstmuseum is even entertaining such a thing, but it would be the only person or entity with standing to challenge any restitution by Germany.  So why is Germany—having just announced its Center of Cultural Property Losses with great fanfare—delaying that restitution simply to contest this lawsuit?

The guess here is that Germany knows more lawsuits are coming.  And if it can make some favorable law in a case that, in effect, it’s going to lose anyway, it may have something to fall back on if challenged over something it does not want to restitute. 

The easiest, and best, thing to do would simply be to return the painting.  Toren would presumably drop the lawsuit at that point, and if not, it would likely be moot.  It’s been at least 75 years since he’s seen the painting.  That seems quite long enough. 

Germany Announces “Center for Cultural Property Losses”: Real Progress or Window Dressing?

Posted in Gurlitt Collection, Restitution

After numerous intimations by German Minister of Culture Monika Grütters, the German federal cabinet announced on Wednesday the official formation of the German Center for Cultural Property Losses (Deutsches Zentrum Kulturgutverluste).  Citing its “awareness of the special responsibility for the reworking of Nazi art theft,” the ruling CDU coalition issued this statement (my translation):

The Foundation for the German Center for Cultural Property Losses will raise the [] of provenance research into Nazi-looted art to a new level.  Its goal is to coordinate, strengthen, and expand the countless activities and facilities of provenance research.  In this way, it will be ensured that wrong will be punished through the strengthened state support. 

Perhaps because of this description, English language coverage has referred to the new center as the Bureau for Provenance Research, despite the actual name. 

The announcement stated that the Federal Republic of Germany will contribute 4 million Euros per year, while the 16 Bundesländer will collectively add about 600,000 more. 

This is a positive development, and should be acknowledged as such.  For many years, well-meaning German museum professionals have simply lacked material support to research their own collections, leaving them with the choice to do it on their own time and nickel, or not do it at all.  Even with the will and the time, the scope of the task is daunting.  Coordinated, national-level support is important.

But 5 million Euros is not as much as it sounds.  The intention is to build out the existing Lost Art coordination center in Magdeburg, and anyone involved in a non-profit budget knows that even a thin staff with a physical plant to attend to costs a great deal of money. 

It has not been a good year for Germany, as the anniversary of the Hildebrand and Cornelius Gurlitt story approaches.  The Task Force’s progress is unknown, with a small handful of announcements so far.  The last two Limbach Commission decisions were fiascos.  Minister Grütters deserves praise for charting this course early on in the Gurlitt saga, when most of the focus was on the still-stalled “Lex Gurlitt” to extend the statute of limitations. 

The flip side, however, is that this announcement, and the center itself, could provide cover for continued inaction, or only a slightly increased pace of research.  That would be a shame.  Here’s to hoping it’s the first step towards progress. 

Rep. Jerrold Nadler, American Royalties, Too Act Sponsor, Added to Speakers at Appraisers Association of America Art Law Day on November 7, 2014 at NYU

Posted in Appraisal, Authentication, Detroit Bankruptcy, Events, Legislation, Resale Royalties, Restitution

Art Law Day at the Appraisers Association of America’s annual conference is now less than a month away.  Held at the NYU Kimmel Center, this year’s event will be held on Friday November 7, 2014.  Sullivan & Worcester LLP is excited to be a Friend of Art Law Day this year.

The scheduled that was first released is below, but the AAA also announced yesterday that Rep. Jerrold Nadler (D-NY) will also speak.  Rep. Nadler is the sponsor of the American Royalties, Too Act of 2014, an effort to incorporate resale royalties into copyright law (particularly as state-level efforts have run into constitutional problems).  The ART seemed promising, and was reportedly set for a vote this summer, but there has been no movement since, and only a month away from the election and a lame duck session at the end of the year (after which any pending bills will expire), it will be interesting to hear his thoughts on the prospects for success.

Hope to see you there!

Welcome—Betty Krulik, AAA President, Betty Krulik Fine Art Limited; Terry Shtob, Director Liberal Arts and Writing Programs, NYU SCPS

Keynote Address: New Legislation for Authentication Experts—Judith Bresler, counsel, Withers Bergman LLP

The Changing Laws for the Sale of Endangered Species—Craig Hoover, Chief, Wildlife Trade and Conservation Branch, U.S. Fish & Wildlife Service; Lark Mason (moderator), President, iGavel Auctions/Lark Mason Associates; Michael McCullough, partner, Pearlstein & McCullough LLP; and Monica Kreshik, Associate Attorney, Department of Environmental Conservation.

Restitution—Christopher Marinello (moderator), Director & Founder Art Recovery International Ltd.; Monica Dugot, International Director of Restitution, Christie’s; Marianne Rosenberg, attorney and granddaughter of Paul Rosenberg; and Ulf Biscof, partner, Biscof & Paetow Rechtsanwälte.

IRS/Tax Free Exchange—Suzanne Goldstein Baker, Executive Vice President & General Counsel, Investment Property Exchange Services; Randi Schuster, principal, Baker Tilly Virchow Krause, LLP; Elizabeth von Habsburg (moderator), managing director, Winston Art Group; and Diane Wierbicki, partner, Withers Bergman LLP.

Bankruptcy and the Detroit Institute of Arts—Ford W. Bell, President & CEO, American Alliance of Museums; Amy Goldrich (moderator), of counsel, Cahill Partners LLP; Richard Levin, partner, Cravath Swaine & Moore LLP; and Samuel Sachs II, Pollock-Krasner Foundation, Director Emeritus, the Frick Collection, former Director, Detroit Institute of Arts

Vienna Natural History Museum Restitutes Botanical Drawings to Nazi Victims’ Heirs, Acknowledges the Too-Often-Ignored Reality of Persecution and Coerced Sales

Posted in Museums, Restitution, World War II

Vienna’s Natural History Museum (Naturhistorisches Museum) has restituted 177 botanical drawings and prints to the heirs of Dr. Ernst Moritz Kronfeld.  The restitution, while somewhat delayed following a 2011 recommendation by Austria’s Advisory Council under the country’s Law for the Restitution of Artworks from the Austrian National Museums (Bundesgesetz über die Rückgabe von Kunstgegenstände aus den Österreichischen Bundesmuseen), highlights the increasing sophistication of that Advisory Council, particularly compared to recent steps backward by the Limbach Commission in Germany.  Austria, once a lightening rod for criticism about confronting wartime and Nazi provenance issues, returned these drawings because of the clear problems with trying to portray any 1941 conveyance by a Viennese Jew as an arms’ length transaction—even without direct evidence of coercion.  Just as importantly, it brushed away the defense that the drawings had been acquired in good faith as an excuse to continued possession, a dramatic change from the perspective usually taken by civil law countries. 

The Advisory Council’s opinion (available only in German, here), portrays Kronfeld as a classically—if tragically—fin de siècle Austrian Jewish figure.  He was born in Lemberg in Galicia in 1865, then part of the Austro-Hungarian empire.  Lemberg was the German-language name for what is now know as Lvov, Ukraine, and the capital of the increasingly autonomous region/kingdom of Galicia.  It was host to a thriving Jewish community by the time of Kronfeld’s childhood in the late empire.  In adulthood, Kronfeld was editor of several magazines in Vienna, a garden historian, and botanist, best known for his collections and knowledge of the palace at the Hapsburg summer palace of Schönbrunn (another first-rate state museum in Vienna).  

The works reflected the work of botanist Nikolaus Joseph von Jacquinn and gardener Ryk van der Schot (who was later the court director of gardens and menagerie).  Von Jacquinn and van der Schot had participated in an Austrian expedition to the West Indies between 1754 and 1759, and the illustrations reflected their representations of the flora that they saw there.  The exhibition had been commissioned by Franz Stefan von Lothringen, husband of Austria’s iconic Empress Maria Theresia. 

By 1938, the Advisory Council noted, Kronfeld was one of Austria’s largest collectors of books, pictures, documents, and plans of the park at Schönbrunn.  After the Anschluss in March of 1938, Kronfeld was required to submit the infamous standard inventory of all his property, which as for many other Viennese Jews simply provided a handy list of prized objects for Nazis to seek out.  Kronfeld offered his collection to the National Library (Nationalbibliothek) in 1940, via the antique dealer Dr. Rudolf Engel.  The only surviving record of this seems to be a letter from Engel to the National Library dated January 2, 1941, which rejected the offered price of 100 Reichsmarks (a paltry sum), and asking that the manuscripts be returned to Kronfeld.

Kronfeld died in his apartment in Vienna on March 16, 1942.  According to the documentation accompanying his death, he had property worth less than 300 RM, and a few clothes, in his possession.  Barely two months later, 14 pictures once in the Kronfeld collection were received by the Vienna municipal collections, transmitted by Baldur von Schirach, longtime head of the Hitler Youth and, later, Gauleiter (District Leader) of Vienna (Schirach was convicted of war crimes at Nuremberg, and sentenced to 20 years in prison.  He died in 1974).  Those 14 pictures were restituted in an earlier proceeding.  Kronfeld’s wife, his sole heir, was deported to Theresienstadt in August, 1942, and murdered at Treblinka in September, 1942. 

In November, 1942, Engel offered a renewed portion of the Kronfeld collection (described as such) to the National Library.  The fate of the balance of the collection during and after the war is unclear.  The 177 objects resurfaced in 1988, offered again to the National Library by antiques dealer “W.K.”  That dealer’s archives indicate that the objects arrived there in 1980, of unknown provenance.

The Advisory Council acknowledged that it could not determine exactly what happened to the collection between 1942 and 1988, but concluded nonetheless (my translation):

These questions can be left open, because the sale by either Dr. Kronfeld or his widow would have been sales by persons in a persecuted group, and would also be void as an appropriation in connection with the deportation of Rosalia Kronfeld within the meaning of § 1 of the Annulment Acts (the determination of Rosalia Kronfeld as the sole heir and legal successor of her husband need not be analyzed further in this determination of restitution). 

The Advisory Council determines, therefore, that the collection of Ernst Kronfeld eventually of his widow Rosalia Kronfeld, was seized. 

The works were thus restituted to surviving heir Mario Lanzer, as well as the Israeli Cultural Society as representative for any other heirs. 

This decision, as noted above, is more than three years old, and is one of many issued by the Advisory Council.  But it is important for the manner of its analysis.  First, it acknowledges that it cannot be determined with certainty who took Kronfeld’s collection, whether by “sale” or outright seizure.  Most commendably, however, it refuses to hide behind that fact and engages in inferential analysis that should be obvious to anyone: there is simply no possible way that Kronfeld could legitimately have disposed of his collection given his circumstances.  Quite unlike this summer’s ludicrous decision by the Limbach Commission in Germany over the claim by heirs of Clara Levy to The Three Graces (Drei Grazien) by Lovis Corinth (in soon-to-be-occupied Luxembourg), or last winter’s ruling in the Welfenschatz case (Jewish dealers targeted by Hermann Göring himself in 1935), this Austrian panel was not looking for a away to avoid the only real conclusion: Kronfeld was persecuted to the point of either selling the collection out of necessity, or it was stolen from him.  Perhaps most welcome, the Advisory Council implicitly acknowledges that it does not matter which to conclude that the works must be returned.  The decision nonetheless had the courage simply to say what was so clearly the case.  Circumstantial inferences take a bad rap, but as Henry David Thoreau said, “Circumstantial evidence is occasionally very convincing, such as when there is a trout in the milk” (as evidence of the dairy’s negligence, whether or not anyone observed the fish being put there).  Circumstantial evidence is indeed very convincing, especially when the collection of a recently deceased Viennese Jewish man turns up on the art market in 1942 (also after his wife and sole heir was murdered).  

Equally welcome is the decision not to punish Kronfeld’s heirs for the NHM’s later good faith acquisition.  This is more typically in line with the Anglo-American property concept that a thief cannot convey good title.

In a broader sense, it is a reminder of the continued evolution of the Advisory Council.  Austria was once widely derided for willful blindness to its national collection’s Nazi-looting problems.  The Advisory Council is not perfect, and has issued decisions before that made people very upset.  But as I said a year ago in defending the decision over the Portrait of Amalie Zuckerkandl by Gustav Klimt from collateral attack (a defense over which I took some pointed comments), it is a system that is trying, and that is clearly developing its sophistication.  That is cause for celebration, and an example that the Limbach Commission (among others) would do well to follow. 

Detroit Emergency Manager Kevyn Orr Testifies About Impact of Selling Detroit Institute Art Collection

Posted in Bankruptcy, Detroit Bankruptcy, Litigation, Museums

Throughout the Detroit bankruptcy and the attendant speculation about what role, if any, the collection at the Detroit Institute of Arts that is owned by the city should play, a parallel parlor game has been to try to guess what Emergency Manager Kevyn Orr’s endgame and motivation really was.  He has dropped hints about the importance of the collection in helping the city emerge from bankruptcy, but his plan of adjustment did not include any sales or loans with the collection as art.  Rather, it included what has come to be called the “Grand Bargain,” under which several foundations will pledge hundreds of millions of dollars (as will the State of Michigan) to keep the art safe from liquidation.

This morning, however, the public got its first glimpse at what Orr really thinks about all this, when he testified at the ongoing trial.  The Detroit Free Press has a live blog of the trial, which can be found here for timely updates and developments.  Nathan Bomey has also been providing real time Tweets from inside the courtroom.

While there were reports this week that remaining Grand Bargain objector Financial Guaranty Insurance Corporation (FGIC) had reached a deal similar to the one that allowed Syncora Capital to step aside, nothing is final yet.  And so Orr took to the stand, and said the following in response the questioning by Bankruptcy Court Judge Steven Rhodes, “”Why not monetize the art?”

Orr reportedly testified that he believes that a sale would harm the museum irreparably, spawn a legal battle that would take years to resolve (DIA has promised to fight any sales), and create a domino effect among donors and surrounding communities:

“In fact, my understanding is the endowment effort they’ve undertaken has taken a bit of a downfall as (donors) wait to see what happens,” he said.

As we’ve surmised, Orr’s hope all along in insisting that the collection play some role is the attempt to “some value I did not have at the beginning of this,” given that the Chapter 9 proceeding would not allow for any order to compel the city to sell the art against its wishes. “For me, that changed my perception of what was reasonable in terms of preserving a city asset and answering a question I’d always posed to the DIA and benefactors. We must have a solution to this problem and that provided a solution,” he reportedly testified.  Asked by FGIC’s attorney if he had considered other ways to monetize the art, Orr said yes.

We may indeed look back on this as pulling a rabbit out of a hat, when all is said and done.

Graffiti, Vandalism, and Public Expression: Public Art and its Uneasy Relationship with the Law

Posted in Copyright, Moral Rights, Public Art

Recurring events involving public art have underscored the tension between that expression and the law.  Banksy’s “residence” in New York last fall broached this subject, but this summer’s Brooklyn Bridge flag incident, and several new lawsuits asserting copyright in graffiti will test the bounds of what the law protects and what it permits.  As Banksy says:

The question is far more than academic.  Roberto Cavalli, an Italian fashion designer, is currently facing a lawsuit in California claiming that his designs incorporate a mural in San Francisco’s Mission district by the artists known as Revok, Reyes and Steel.  American Eagle clothing faces a claim by Miami street artist David Anasagasti (better known as “Ahol Sniffs Glue”), arguing that his mural “Ocean Grown” was wrongfully included in an advertising campaign.  In Chicago, director Terry Gilliam faces a request to enjoin further distribution of his new film Zero Theorem because of the similarity between the background of a part of the movie set, and a graffiti mural in Buenos Aires, Argentina (these comparisons are from the Complaint):

 

Is all this putting the cart before the horse?  Surprisingly, as an article in The Atlantic this month points out, it is far from clear how much courts will recognize copyright in graffiti in the first instance.  While I certainly agree with Philippa Loengard (assistant director of Columbia Law School’s Kernochan Center for Law, Media, and the Arts) that the American Eagle infringement seems pretty clear, one really never knows until a court weighs in.  If that needed a reminder, the remarkable amicus brief filed this month with the Supreme Court about rap lyrics and free speech underscores it.  Remember: photographs are copyrighted as a matter of course now, but once upon a time it took a Supreme Court case (Burrow-Giles Lithographic Co. v. Sarony) to establish the principle; before that, people weren’t entirely sure.  If the Supreme Court needs an explanation about rap music and threats, perhaps it would consider graffiti’s entitlement to copyright protection to be an open question.

With that said, it would be quite a stretch for court not to find that graffiti is a work of expression fixed in a tangible medium—all that is required for copyright protection.  Functionally, graffiti is a painting, no less so than Leonardo’s Last Supper fresco.

Things are even more complicated than that because most graffiti is painted on someone else’s property.  Apart from the remarkable 5Pointz case (more on that below), very few graffiti artists have the explicit or even tacit permission of the property owners where the works are painted.  So these cases set up the very real possibility that a graffiti artist could win copyright damages over reproduction of a work of art of which he or she cannot prevent the destruction.

And yet, is that so strange?  After all, the same is true of any visual work of art still protected by copyright.  The following is a portrait of yours truly, composed by my daughter (remember, the camera adds 5 pounds):

I own the artwork, she owns the copyright.  She can control its reproduction (reprinted below with permission, in loco parentis, of O’Donnell Minor Child).  She can enjoin its copying, but I can  physically alter or destroy the artwork (but I won’t!).

But even that is not so simple.  As the 5Pointz case highlighted, but did not definitively answer, graffiti may still qualify for moral rights protection under the Visual Artists Rights Act of 1990, 17 U.S.C. § 106A (VARA).  The plaintiff artists in that case failed to obtain a preliminary injunction because the court was not convinced that the works were of “recognized stature,” one of the law’s elements.  Yet it is not hard to imagine a better-known graffitist, (e.g., Banksy) from satisfying that element easily.

That, in turn, would set up the showdown that 5Pointz teased us with: the owner of private property constrained from its destruction or alteration because of the application of a painting to which he did not agree.  Now that would be interesting.

None of this, of course, protects the artists themselves from the interim consequences of what the law otherwise regards as vandalism.  Then-Mayor Michael Bloomberg (in a somewhat tone deaf manner, to most observers), wouldn’t absolve Banksy from vandalism charges, and instead characterized the work as evidence of “decay.”  This is hardly a unique opinion, many recall with little glee a more-graffiti-filled past in New York, as an exhibition earlier this year at the Museum of the City of New York explored (“City as Canvas”).  Likewise, the two German artists who planted a white American flag under cover of darkness atop the Brooklyn Bridge, whatever the expressive merit of that act, are essentially banned from returned to the United States unless they want to be arrested.  Further, the flag that they left behind was a deliberate play on the actual U.S. flag (including stars and stripes), but in a uniform white color.  What if that starts appearing in derivative works?

Lastly, don’t forget your Latin grammar if you get out your paintbrush: Romani ite Domum.  Happy tagging, everyone.

Appellate Ruling Bolsters Role of Fractional Interests in Estate Planning

Posted in Estate Planning, Tax

The Fifth Circuit Court of Appeals has overturned a Tax Court decision in a ruling that has major implications for estate planning and works of art. While the central basis for the decision in favor of the Estate of James Elkins was the inexplicable failure by the IRS to rebut the taxpayer’s evidence, the decision nonetheless offers guidance for an important estate planning tool: fractional interests. Eileen Kinsella has also analyzed the case at Art Net (I’m quoted) here.

The case concerned the amount of estate tax owed on sixty four paintings. The decedent (the person who died) had, by the time of his death, given away fractions of the title to these works, either to individual family members, or to a Grantor Retained Income Trust (“GRIT”). Moreover, most of the paintings were subject further to “co-tenant” agreements, which dictated where and who would have custody of the paintings at various points. All told, his interest was 73.005% of sixty one of the paintings, and 50% of the GRIT paintings.

Upon Elkins’s death, the estate identified a total fair market value of roughly $25 million for the sixty one paintings, and $10 million for the GRIT artwork, discounted for the reduced percentage that Elkins owned. The implication of that is a direct reduction in estate tax: smaller value, lower tax. The IRS, however, refused to recognize that discount, despite allowing every other discount proffered by the estate on other property that Elkins owned. the upshot was significant: a $9 million tax deficiency assessment.

The estate challenged the assessment in Tax Court (where taxpayers can take issue with an assessment before actually paying it, compared to making the payment and seeking a rebate in the Court of Federal Claims). The estate put on an extensive evidentiary case about the value of the art, in particular the reduced subjective value to the family given the myriad restrictions on who could possess it. In other words, the value that one would be willing to pay for the (fractional) interest that Elkins held at his death was less than fair market value for the obvious reason that it was less than outright ownership. The outcome that the estate and its experts advocated was that “any hypothetical willing buyer would demand significant fractional-ownership discounts in the face of becoming a co-owner with the Elkins descendants.”

The IRS did not put on any evidence about the value or the appropriate discount by which the estate tax should be reduced. It did proffer an expert who testified about the absence of a recognized market for fractional interests.

After trial, the Tax Court recognized the fractional interests held by the decedent in the art, but elected to discount them by 10%, not the 26.995% and 50%, respectively.

The Court of Appeals opinion focuses mostly on this disparity of evidence. It endorsed the willing buyer/willing seller perspective on fair market value (happily, to do otherwise would have been at odds with settled industry practice). But it is the IRS, not the taxpayer, who bears the burden of proof to establish the correct fractional ownership discount. The IRS’s decision to stick to a “no discount” position was thus its undoing.

From there it was not difficult to dispense with the 10% discount applied by the Tax Court. Although couched in respectful language for the court whose decision it overturned, the Court of Appeals opinion concluded that “there is no viable factual or legal support for court’s own nominal 10% discount.”

Estate tax has serious ramifications for collections of this magnitude, and the decision can certainly be read to endorse fractional interests as a planning tool. Beyond that, the effects of the decision are likely specific to this particular case. After all, estate planning is designed to plan for unexpected contingencies, and this plan seemed to rely on the cooperation of many different family members. One always hopes for the best, but any collection’s plan should carefully account for all the stakeholders involved.

Argentina, Bond Payment Default, Contempt, and Art Restitution Claims: An Unlikely But Important Mix

Posted in Foreign Sovereign Immunities, Restitution

When Judge Thomas P. Griesa of the U.S. District Court for the Southern District of New York (Manhattan) held Argentina in contempt on Friday for the South American nation’s default on bond payments, few people likely perked up with attention about the possible implication for art restitution.  But with a bit of indulgence, the connection is more important than it might first seem. 

Argentina is embroiled in litigation with the holders of bonds that it issued, and on which it has defaulted (a vast oversimplication of the situation).  The capital markets and geopolitics have watched for months as Argentina has negotiated and mediated with its creditors.  The core dispute relates to Argentina’s negotiated resolution of its last bond default in 2001, a resolution to which not all of its creditors agreed.  Those “holdouts” (principally Paul E. Singer’s NML Capital) have continued to press Argentina to honor its pre-2001 bond obligations, and therein lies the dispute.

The mechanics of the matter are complicated, but over the course of the dispute and complicated questions of creditor priority and allowable payments, one important aspect has been the deposit of interest payments into a form of escrow.  Specifically, Argentina’s deposit of money that it is contesting that it owes with a third party pending resolution of the case: when Argentina failed to make certain payments on July 30, it argued that it was not actually in default because of that deposit of $539 million with the Bank of New York Mellon. 

Last month, however, Argentina unilaterally passed legislation to replace BNY with the state-owned Banco de la Nación.  The difference is important and clear: rather than a disinterested stakeholder, the money was moved back into Argentina’s exclusive control.  That, in turn, undermines the notion that the default never occurred.

Having previously warned Argentina against making this move, the court held Argentina in contempt on Friday September 26, 2014. 

So, you are probably still wondering, what does this have to do with the Art Law Report?  The answer relates to the willingness of a court to find a sovereign defendant in contempt, and the follow-up question (still unanswered in Argentina’s case) of the court’s willingness to issue sanctions against such a foreign sovereign.

This may finally start to sound familiar to long time readers given one of the disputes we have been tracking for years: the Chabad Lubavitch movement’s lawsuit against the Russian Federation over the movement’s library.  When the Argentine bondholders asked Judge Griesa to hold Argentina in contempt, both that nation and the United States weighed in to urge the court not to do so, for fear of breaching international protocol.  The U.S. did the very same thing when Chabad asked the District of Columbia U.S. District Court to hold Russia in contempt, and again when Chabad asked for sanctions. 

In both instances the Washington court ruled against the U.S.’s request, and the sanctions that began to accrue at $50,000 per day on January 16, 2013 (622 days ago) now stand at a staggering $31,100,000.

Russia, of course, has shown no sign of paying that, instead launching a retaliatory lawsuit and generally continuing to behave in the most disruptive way possible to the international art world.  And, the Foreign Sovereign Immunities Act still places strict limits on the ability to collect on foreign assets pursuant to such an order.

But the willingness of a federal court to take this kind of action against a sovereign defendant is a significant and important one.  Russia has been an outlier in terms of intransigence, but as with any court power, the appearance of authority is often as important as the authority itself.  There are any number of potential wartime restitution sovereign defendants that have shown no interest in confronting provenance problems, and that may be inclined to brush off court process as long as possible.   

The Argentina bond case is probably the most-closely-watched litigation—of any kind—in the country right now.  The sanction that may be requested is the very same $50,000 per day fine.  For anyone that has or may have an art restitution case against a sovereign defendant, Judge Griesa’s next move will be very important.