The Art Law Report

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

Sullivan & Worcester LLP Pleased To Become a Friend of the Appraisers Association of America Art Law Day on November 7, 2014

Posted in Authentication, Detroit Bankruptcy, Events, Restitution

I’m pleased to announce that Sullivan & Worcester LLP has signed on as a Friend of Art Law Day at the annual conference of the Appraisers Association of America.  The schedule has recently been released and registration is now available.  Held once against at New York University Kimmel Center, this year’s event will be held on Friday November 7, 2014.  The schedule is below and promises to be a fascinating day. 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. 

Corcoran Merger Approved, Cy Prés Ruling Treats Deaccession as Non-Starter in Concluding that Status Quo is Untenable

Posted in Cy Pres, Deaccession, Museums, Trusts

 As reported initially, Judge Robert Okun of the District of Columbia Superior Court allowed yesterday the cy prés petition by the trustees of the Corcoran Gallery and the Corcoran College of Art + Design.  The full opinion can be read here.  The petition asked to reform the trust of William Corcoran to permit a merger with the National Gallery of Art and George Washington University, a merger that will now proceed.  The ruling addresses the financial condition of the Corcoran at length, but what is perhaps most interesting is the court’s acceptance of a central argument made by the Corcoran that selling its artwork to shore up its finances was an unacceptable way to proceed.  This adopts the view, espoused most prominently by the American Alliance of Museums (AAM) and the Association of Art Museum Directors (AAMD), that deaccessioning for anything other than the purchase or care of art is anathema.  Right or wrong, that acceptance in this opinion should have long lasting effects.  Framing the question in this way was a work of skilled lawyering by the Corcoran’s attorneys, and kudos must go as well to the interveners and their counsel, without whom the other side of the story would have had no advocates at the trial.  Those interveners have stated that they do not intend to appeal, meaning the case is over.  Jayme McLellan, founder of Save the Corcoran, issued a statement after the ruling that “The Corcoran as we know it is gone. We fought the good fight.”  Incidentally, in response to our earlier reporting of McLellan’s role, I received an e-mail yesterday from Mimi Carter, the Corcoran’s Vice President, Marketing & Communication.  Ms. Carter stated “Jayme McLellan was not fired from the Corcoran. She resigned in 2012, as mentioned on the first day of court hearings, citing differences with leadership. While there was a miscommunication with Ms. McLellan because of a lack of internal systems, due to a diminished staff and finances, she was not offered a contract to teach this coming Fall. Statements of retaliation are simply false.”

This is a significant ruling that will have an effect on museum management beyond cy prés petitions, which are relatively rare.  The court’s treatment of deaccession as a non-starter is a judicial adoption of a principle that is codified only in the regulations of the New York Board of Regents.  That is notable in and of itself. 

In his opinion, Judge Okun frames the issue simply: 1) is carrying out Corcoran’s Deed of Trust impracticable; and 2) is the proposed reformation as near as possible to the donor’s intent?  The opinion then reviews the course of the trial: three witnesses for the Corcoran (Corcoran COO Lauren Stack; Dr. Steven Knapp from George Washington University; and consultant Sean O’Connor), and eight witnesses for the interveners and opponents of cy prés, consisting of five fact witnesses (Harry Hopper III, chairman of the Board of Trustees; Wayne Reynolds; Dr. Wallach Loh of the University of Maryland; Anne Smith, former Associate Director of Individual Giving; and Caroline Lacey, a current College of Art + Design student), and three expert witnesses (Paul Johnson, consultant at Alexander Haas; Kathy Raffa, an accountant; and Chiara Trabucchi, a consultant at Industrial Economics).

The foundational history of the Corcoran was not in dispute, and so the opinion focuses on the financial conditions of the last twenty five years in particular.  The court found that “since 2001, the Corcoran has had a negative ‘true change in net assets from operations’ in eleven of the last thirteen years. . . .”  Maintenance had also been deferred for financial reasons.  To meet its $28 million annual operating budget, the court found that the Corcoran relies on three principal sources: $18 million from tuition (only a net of $13 million after financial aid), $1.5-$1.7 million from admissions/special events, and $3.8 million in charitable fundraising.  Right there, that is a shortfall of nearly $5 million.

The opinion devotes an entire section to consideration of the impact of deaccessioning and accreditation.  It highlights both the pending re-accreditation with the Middles States Commission on Higher Education (MSCHE) for the College, and the AAMD/AAM guidelines and Code of Ethics on Deaccessioning for the Gallery.  The former was explicitly at risk without the merger (which MSCHE endorsed).  With regard to the AAMD/AAM guidelines, the court found:

Violation of AAM’s Code of Ethics might result in loss of AAM accreditation, which would have a negative impact on the Corcoran’s ability to hire and retain qualified staff as well as its eligibility for grants and federal funding.  [] Also, violation of the AAMD’s Policy [on deaccessioning] likely would result in sanctions, which would limit the Corcoran’s ability to host traveling exhibitions, to loan and receive loans of art from other institutions, and to hire and retain qualified staff.

It is important to remember that the Court was not endorsing or commenting on these industry guidelines.  It was, however, accepting their importance to the operation of the museum.  Essentially, it found that an institution like the Corcoran cannot operate independently of the AAM or AAMD, whose opprobrium would surely follow any deaccessioning.

My initial take is that the court’s acceptance of this perspective on deaccessioning is extremely significant.  Just last week there were two mainstream publications about deaccessioning, one in the New York Times and one on National Public Radio.  Both, frankly, spoke about the public trust and the inviolability of collections without really exploring the other side of the question.  As good friend of the Art Law Report Donn Zaretsky put it today in response to the announcement that the Art Institute of Chicago is selling 117 works (but presumably for the purchase of more art):

How can this be okay – not even worthy of a mention in the press aside from the auction house’s own press release – but it’s not okay for the Corcoran to sell work in order to keep from disappearing?  It can’t be a matter of the public trust – or else both sales would be wrong.  And it can’t be a concern about future donors – or else, again, both sales would be wrong.

This is a serious question that deserves an answer from anyone who thinks the subject deserves bright-line treatment.  Sergio Muñoz Sarmiento also decried the simplistic treatment of a complicated issue at the Deaccessioning Blog here.  In any event, in treating deaccession as a non-starter, it was not a great leap from there to conclude that the status quo was untenable, and that the prospects of fundraising advocated by the interveners seemed overly optimistic on the record before the court. 

The critical balance of the analysis is other half of the question: is this as near as possible?  The alternative proposal that had been negotiated with the University of Maryland captured the court’s attention on that score. 

Concluding that the trustees’ burden of proof was only a preponderance of the evidence, the court applied cy prés.  Most of the assets owned by the trust are restricted, and the other cash flows just do not add up.  The court notably side-stepped the question of the Corcoran’s management, noting that the question was only the present state of affairs. 

With regard to Corcoran’s original intent, the court found

The GW/NGA proposal is the best way to effectuate Mr. Corcoran’s original intent, given the Corcoran’s current financial circumstances and the option that actually are available to the Trustees at this time. 

This is because the court viewed Corcoran’s

primary intent [as] to create a gallery of fine art, along with a  college of art and design, located in the District of Columbia, and to encourage the production and preservation of fine art through both the gallery and the college.

The court was satisfied that the dual input of the National Gallery of Art and George Washington University met those criteria.  The court found the alternatives proposed as “less consistent with Mr. Corcoran’s intent.”  Critically, any alternative would necessarily involve renegotiation at a minimum, imperiling accreditation and the coming academic year.  The court was demonstrably unimpressed with Reynolds’s suggestions—for many reasons, including their inclusion of deaccessioning. 

The court summed up the matter thusly:

Undoubtedly, Mr. Corcoran would not be pleased by this turn of events.  It seems likely, however, that he would be pleased to see that the College will be preserved through its partnership with the very university to which he donated both property and his company’s archives, and where he served as Chairman of the Board for several years, and that the Gallery will be preserved through its partnership with one of the country’s pre-eminent art institutions.

Court Grants Corcoran Cy Pres Petition to Merge with National Gallery and George Washington University

Posted in Cy Pres, Deaccession, Museums, Trusts

News broke this afternoon that Judge Robert Okun has allowed the Corcoran Gallery and Corcoran College of Art + Design’s News broke this afternoon that Judge Robert Okun has allowed the Corcoran Gallery and Corcoran College of Art + Design’s cy prés petition to modify their governing trust to merge operations with the National Gallery of Art and George Washington university.  I do not have a copy of the opinion yet, but Rebecca Cooper at the Washington Business Journal quotes the opinion as follows:

This court would find it even more painful to deny the relief requested and allow the Corcoran to face its likely demise — the likely dissolution of the college, the closing of the gallery and the dispersal of the gallery’s entire collection.

[]

The issue before the court is not whether the Corcoran could have been managed more efficiently over the past decade, but whether it currently is impracticable for the Trustees to carry out the existing deed of trust. . . .

[]

Undoubtedly, Mr. Corcoran would not be pleased by this turn of events. . . .  It seems likely, however, that he would be pleased to see that the college will be preserved through its partnership with the very university to which he donated both property and his company’s archives … and that the gallery will be preserved through its partnership with one of the country’s pre-eminent art institutions.

Cooper reported that the interveners do not plan to appeal.  More analysis when we have the full order. 

UPDATE: the full order can be found here.  Stay tuned.

Gurlitt Task Force Issues Second Public Recommendation, Urges Restitution of Liebermann painting to David Toren—Lawsuit Not Over Yet

Posted in Gurlitt Collection, Restitution, World War II

Eileen Kinsella at ArtNet news reported today that the Gurlitt Taskforce has recommended the restitution of the Max Liebermann painting Riders on the Beach (Reiter am Strand) to David Toren, a New York man who left Germany at age 14 in 1939.  His great uncle David Friedmann lived in Breslau, the capital of Silesia (now part of Poland, known as Wrocław).  The Nazis catalogued and seized Friedmann’s art collection in 1939-40, and the Liebermann painting appears on those  records.  It was later found among those 1,280 objects seized from Gurlitt a little over two years ago when he aroused suspicion returning from Switzerland with a large amount of cash. 

This development is significant for at least three reasons.  First, it is only the second public pronouncement by the Task Force about restitution of a particular object, following the recommendation that Seated Woman by Henri Matisse be returned to the heirs of Paul Rosenberg. 

Second, Toren remains the only claimant of which we are aware to initiate litigation in the United States over the Gurlitt find.  Torent’s Complaint seeks recovery under several theories, but they fall into two groups: the first is bailment, the other is wrongful possession.  Jurisdictionally, the case does not follow the Altmann v. Republic of Austria invoking the FSIA for a claim against a foreign sovereign related to property taken in violation of international law (the so-called “appropriation exception” to sovereign immunity).  Instead, the Complaint relies on 28 U.S.C. § 1605(a)(2), which states that “A foreign state shall not be immune from the jurisdiction of courts of the United States . . . in any case in which the action is based . . . 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.”  The “effect” that the Complaint alleges that Bavaria’s seizure of the paintings caused, was that its “constructive bailment” agreement (the idea that there was an agreement with the true owners) was breached.  Since Toren is in the United States, he argues, the effects of the breach—again, caused by the seizure in Munich—happened in New York and satisfy the statute.

Asked about the effect of the Task Force’s decision on the lawsuit, Toren’s attorney August Matteis said, “We are extremely pleased, but not surprised, that the Task Force has agreed with our position that Two Riders On a Beach belongs to the heirs of David Friedman. . . .  This is a very important first step in returning the painting to its rightful owners and we hope that the German government will not further delay returning the painting that was stolen from David Friedman over 70 years ago.”  He cautioned, however, that  “We have no intention of dropping the lawsuit until Two Riders has been turned over to David Toren and the German government has provided us with further information about other stolen paintings belonging to David Friedmann that may be in the collection seized from Gurlitt.”

Lastly, the announcement underscores ongoing concerns about timing.  The one-year agreement deadline to review the Gurlitt collection is nearly half done, and the pace of decisions has hardly quickened.  At this rate, there would only be four or five announcements by the time the deadline passes.  Even the www.lostart.de website has yet to report the decision. 

Meanwhile, there have been no further indications of whether the Kunstmuseum Bern will accept Gurlitt’s appointment as heir.  A recent article here in the Berner Zeitung (in German) suggest a number of organizational and bureaucratic obstacles to the making of that decision.

Except more to come in the story that never ceases to surprise. 

 

Corcoran Cy Prés Trial Wraps Up, Whether Judge Thinks Deaccessioning is Worse than the Alternatives Will Influence Final Result

Posted in Cy Pres, Deaccession, Museums, Trusts

The two-week trial over the possible reformation of the Corcoran Gallery and the Corcoran College of Art + Design ended last week, with Judge Robert Okun expected to rule by the end of the month.

The trustees, as proponents of cy prés reformation, put of a case of dire financial straits.  Without reformation and merger with the National Gallery of Art and George Washington University, they argued, it is only a matter of time before the institution is insolvent and must close or take other paths.  Interestingly, the trustees used the specter of deaccession as a basis for reformation, effectively, that continuing to pay its debts by selling artwork is worse than not continuing at all.  As attorney Charles Patrizia put it in his closing, “Now there will be stronger support, stronger exhibits. . . .  The college will continue with a stronger base educationally, financially and structurally.”  The very accreditation of the institution is at stake, he argued. 

The interveners, represented by Andrew Tulumello, painted a very different picture.  Citing the Corcoran’s most recent audited financial statements, they argued that the gallery’s debts were $17.9 million against assets of $91 million.  “For generations, the institution endowed by Mr. Corcoran thrived,” he said. “This board seeks its dissolution.”

The first week provided a number of interesting side-plots, and the second was no different.  As the trial drew to a close, news came that founder of Save the Corcoran—the group that was denied intervention in its own right, but which spearheaded the successful effort of several current students and faculty to intervene—claimed to have been fired from the faculty of the College of Art + Design.  Jayme McLellan was scheduled to teach a course this fall in which sutdents had already enrolled.  But during the first week of the trial, Lynn Sures, chair of the college’s fine art department, informed McLellan that her class had been cancelled on the instruction of Corcoran Director and President Peggy Loar.  McLellan was quoted as attributing the decision as “Because of my activism,” she said. “Why else? I’m perfectly qualified. I teach the class at MICA; I’ve taught it at AU and St. Mary’s. I’ve taught lectures and seminars and workshops for 18 years, and only ever had stellar evaluations from students. They have no reason [to terminate me].”

If the decision were attributed to McLellan’s criticism of management, even if retaliatory in the colloquial sense, the Corcoran is probably free to do so.  But given her leadership of Save the Corcoran, it is theoretically possible that her activism could be viewed as workplace organization, which could afford her labor law protection that might make the decision more complicated. 

Based on the public reports, the financial condition of the Corcoran certainly seems dire.  The assets cited above no doubt include substantial illiquid property like the building.  Short of sale or substantial mortgaging, it is not going to alleviate the going pressure. 

Is the proposal as near as possible to the wishes of William Corcoran?  In a mid-trial editorial for the Wall Street Journal, Lee Rosenbaum argued strongly that the answer is no.   She saw potential in the potential board members identified by Wayne Reynolds, and the need for strong leadership.  Kriston Capps at the Atlantic disagreed.

UPDATE: in response to this post, I received an e-mail from the Corcoran disputing McLellan’s claims of retaliation, and even that she had been fired.  The e-mail read: “Jayme McLellan was not fired from the Corcoran. She resigned in 2012, as mentioned on the first day of court hearings, citing differences with leadership. While there was a miscommunication with Ms. McLellan because of a lack of internal systems, due to a diminished staff and finances, she was not offered a contract to teach this coming Fall. Statements of retaliation are simply false.”

From here, it seems that that ship has sailed.  If willing deep pockets were available to step forward, it seems more likely that they would have already.  

A more interesting question is the deaccessioning point.  Assuming for the moment that the present finances really are untenable, is the National Gallery merger nearer to the wishes of Corcoran than a smaller museum?  It is considered heretical by many even to pose the query, but is it worse for “the Corcoran” to continue with less to look at, than to allow the merger to go forward?  This is a question that Judge Okun will have to answer to his satisfaction.  If the answer is “no,” then no cy prés is necessary. 

First Week of Corcoran Cy Prés Hearing Wraps Up, Focus is on Financial Condition and Other Alternatives to Proposed Merger

Posted in Cy Pres, Deaccession, Museums, Trusts

Judge Robert Okun closed the first week of hearings yesterday on the proposed modifications to the Corcoran Gallery and the Corcoran Gallery of Art + Design in Washington, DC.  The Corcoran’s trustees have petitioned the DC Superior Court for cy prés, to modify the trust that governs the two institutions to allow mergers with the National Gallery and George Washington University.  All told, reports indicate that both sides have made strong presentations of the financial hardship on the one hand, and the possibility that the proposal may not be the only way out of this on the other.

The most significant aspect of the hearings was clearly the presence of the interveners who were allowed in last week.  But for their participation, the proceedings would have been entirely non-adversarial, that is, the petition would have been presented with the support of the trustees and the District Attorney (who is responsible for charitable oversight).  Merely be being there and opposing the case, however, the interveners (and their attorney) have changed all that.

Reports from the first day of hearings on Monday were about Corcoran COO Lauren Stack’s testimony, which apparently spotlighted an annual operating deficit of $10 million.  She testified that an exodus of students (and their tuition fees) was imminent absent reform.  The cross examination was reportedly tense and made a show of her annual compensation.

Thereafter the chairman of the Corcoran, Harry F. Hopper III, defended the proposed plan.  Hopper’s position was that the museum’s condition had made it impossible to solicit the major donations necessary to succeed or even survive.  “You can lead a philanthropist to water, but you can’t make him drink,” he said.

After only two days, the interveners moved the judge to rule adversely on the petition with no further evidence, arguing that the Corcoran had made “a showing of inconvenience,” but no more.  That was denied, not surprisingly.

The interveners and opponents of the plan then got their turn, presenting philanthropist Wayne Reynolds as a key witness.  The Washington Post reported that Reynolds

led a packed courtroom Wednesday on a rollicking and highly critical narrative account of his interactions with gallery leadership, at one point likening the Corcoran’s executive suite to ‘a goat rodeo,’ and asserting that he could do better, if given a chance. “You can’t close a $2 million to $5 million [budget] gap at an institution like this?” he said. “I could do it at a dinner party.”

Reynolds certainly sounds like an independent witness, but that kind of flippant testimony will do the opponents no favors with the judge, who is the sole arbiter here.  Reynolds also campaigned last year to become the Corcoran’s chairman.  That could cut both ways with the judge; he could be seen as a committed supported with ideas for the institution’s future—or, particularly given his testimonial flair, as a disappointed suitor hoping to embarrass the museum that spurned him.

On a more concrete note, Reynolds said that he would increase the board of directors to forty, and he produced a list of candidates whom he said he would recruit: Marcus Brauchli, former executive editor of the Washington Post and at present a consultant with Graham Holdings; Buffy Cafritz; Linda Daschle; Kenneth Duberstein; Susan Molinari; Frank Connor III; William “Billy” Martin; Catherine Merrill Williams, president and publisher of Washingtonian magazine; and former DC mayor Adrian M. Fenty.  It is not clear from reports of the trial whether he indicated whether any of them had been approached or expressed interest.  Other opposition witnesses took aim at Hopper, criticizing his tenure.

Yesterday, the opponents made their strongest move, offering the testimony of Wallace D. Loh, president of the University of Maryland.  Remember: the Corcoran must prove not only its financial woes, but also that its proposal is “as near as possible” to the original trust.  By definition, if an alternative exists that is more like the original trust, the plan will be in trouble.  It was for this purpose that Loh was presented, though not speaking for himself.  Notably, he had to be subpoenaed to appear, and he was not appearing to take one position or another.  The Corcoran’s attorneys teased out why Maryland, which was initially considered for the merger now proposed with George Washington University, was turned away.  Maryland had offered $46 million, but some of that was in the form of loans, and would have required a security interest in the iconic Corcoran building.  Loh, apparently, pushed back a bit, pointing out that the money would actually have been required to be repaid only if the Corcoran had backed out of the partnership, and that he would be interested in reopening the discussion if the National Gallery/GWU plan falls through.  The key contrast highlighted by the opponents is the direction of the money: according to them the proposed plan sends $43 million and the building to GWU, the Maryland plan would have resulted in cash to the trust.

The hearings are set to continue next week.

“Dumb Starbucks” Epilogue: Comedy Central Airs “Nathan For You” Episode Behind it All, Explores Parody, Commerce, and Visual Art

Posted in Copyright, Fair Use

Readers will recall the strange case of “Dumb Starbucks” earlier this year, which initially seemed to pose the question of whether a coffee shop that transparently used the marks and copyrights of Starbucks could claim fair use as an art gallery.  It turned out that the entire performance was just that, a lead up to a Comedy Central series that has since debuted.  We are not, of course, television critics, but in addition to being hillarious (and undoubtedly tongue in cheek), the full episode is an interesting platform for questions about the players and entities that can claim fair use to copyrights or trademarks over visual and creative works.  In the end, the parody/fair use question could never really be answered, but the coverage the numerous news clips that the show included is a reminder of the difficulty of applying art critical concepts to legal analysis.

The solitary coffeee shop that appeared several months ago was seemingly identical to an authentic Starbucks, except that everything simply has the word “dumb” in front of it.  The store also had a “Legal FAQ” sheet that claimed the entire enterprise was allowable as a “parody:

By adding the word ‘dumb’, we are techically ‘making fun’ of Starbucks, which allows us to use their trademarks under a law known as ‘fair use.’  Fair use is a doctrine that permits the use of copyrighted material in a parodical work without permission from the rights holder. It’s the same law that allows Weird Al Yankovic to use the music from Michael Jackson’s “Beat It” in his parody song “Eat It.” 

Our take on these FAQs was that they had few points mixed up, claiming an allowance to use trademarks by claiming fair use over copyrighted works (legally distinct concepts).  Not only that, but designs—even restaurant designs—can become associated with a particular product or services such that they can also be protected.  The real question seemed to be whether Dumb Starbucks was a parody—and whether it was even for real.  The store was closed within days, ostensibly on the order of the Health Department, and it was leaked that Nathan Fielder was behind the whole stunt for a new show called “Nathan for You.”

The premise of this show (and others in the series) is that Fielder offers to help struggling small businesses with obviously terrible ideas.  Fielder suggests to a small coffeee shop “Helio Cafe” in East Hollywood owned by Elias Zacklin that it make fun of Starbucks and avail itself of parody law (and understanding of which he gleaned from Wikipedia).  Fielder gives away the game in ptiching the idea that he wants people to be confused into thinking it might be a Starbucks.  Right on cue he consults an actual attorney who tells him that soliciting that confusion is what will expose him to liability (a side plot that underscores the importance of reading what you sign). 

Interestingly, the idea of selling “dumb” songs to parody Starbucks’s CD collections seems to have been a genuine collaborative and creative enterprise: Fielder and Zacklin actually wrote and performed some songs (an indelicate play on “I Can’t Get No Satisfaction,” for example). 

It turns out that Fielder actually did set up an art gallery in a brick and morter storefront.  The works were all transformations (mostly derogatory) of well-known corporate logos.  Clearly fair use, and frankly pretty interesting.  This was all in service of claiming status as a parody artist. 

Fielder then parted company with the original owner he had pledged to help, rented his own retail mini-mall space, and opened the store.  He tries explaining to customers that he does not have to follow health codes because it is art gallery (which is of course incorrect). 

Where it really gets interesting is as the reactions start to roll in on the store’s second day.  Predictable “what is the art”? questions from pundits followed.  Similarly interesting is the projection of visitors of their take on consumer issues onto the store and Starbucks. 

In the end, of course, the health department did step in, and that was that. 

In the final analysis, the best tribute to Fielder’s piece may be that Starbucks—which vigilantly enforces its copyright and trademarks—didn’t know what to make of it at first.  Hats off to an original idea that served as a great discussion piece for these legal issues. 

United States Abandons Finally Its Effort to Seize Mask of Ka Nefer Nefer in St. Louis, Egypt’s Plans Unknown

Posted in Civil Forfeiture, Customs, Museums

The Department of Justice has made public its plans to let the deadline pass for seeking rehearing or further review of the June, 2014 decision affirming the dismissal of its efforts to seize the Mask of Ka Nefer Nefer in the St. Louis Art Museum by civil forfeiture.  In an interview with St. Louis Post-Dispatch, United States Attorney Richard Callahan stated that “The Department of Justice will take no further legal action with respect to the mask.”

That brings to a final close the U.S. efforts to seize the mask on the theory that it had been stolen before it entered the country (which would have justified its impoundment under customs law), all because the government mixed up its deadlines.  As we suspected it might, the St. Louis Art Museum dismissed its first-filed civil suit when the government’s case was defeated by the 8th Circuit.  With little incentive to continue litigating ownership with an adversary (the U.S.) that could not win back the mask, the museum dropped its declaratory judgment case.

This does not necessarily end all wrangling over the mask.  Egypt itself, which has steadfastly maintained that the mask was taken illicitly before being imported, could still take legal action in the U.S.  Whether that would face timeliness or statute of limitations/laches issues would likely be the question Egypt first considers. 

For now, however, the battle over the mask is over, and it will remain in St. Louis. 

Creditors Strike Back With Report Valuing Detroit Institute of Arts Collection at $8.5 Billion

Posted in Detroit Bankruptcy

Weeks after the city of Detroit released its valuation expert report on the value of the full collection of the Detroit Institute of Arts by Artvest Partners, creditors opposed to the city’s plan of adjustment and the “Grand Bargain” within it have released their own appraisal.  Not surprisingly, it asserts a significantly higher value of roughly $8.5 billion, more than double the estimate in the city’s report.  New York’s Victor Wiener Associates (VWA) has apparently compiled a 50-page appraisal on behalf of Financial Guaranty Insurance Company (the Detroit News and Detroit Free Press have received copies, none are publicly available of which I’m aware. 

This report will presumably serve the inverse purpose of the city’s, namely, to argue that the $816 infusion from the Grand Bargain is an insufficient realization given the collection’s value.  Where the city will argue that extracting that amount from a collection worth somewhere between $3 billion and $4 billion is a windfall, these creditors will presumably take the view that the city could have done better.

The chances that the collection will actually be sold have dwindled to almost none.  The city cannot be forced to sell it, and Judge Rhodes has already telegraphed his dim view of selling cultural assets.  But with the headlines like water being shut off to city residents, expect large numbers like this to play into the debate at the upcoming trial over whether the city’s plan has done enough to address its many creditors and constituents. 

Audio Now Available of “Art Fairs: An Irresistible Force In The Art World?” at Sotheby’s Institute

Posted in Art Fairs, Events

I took part in a panel discussion at the Sotheby’s Institute on May 27, 2014 entitled “Art Fairs: An Irresistible Force In The Art World?” 

The audio file of the evening can now be heard here, along with a transcription of the first half of the presentation.  Moderated by Judith Prowda, the panel was comprised of Edward Winkleman, Elizabeth Dee, Richard Lehun, and me.  We reviewed the financial, practical, ethical, and legal effects that the expansion of art fairs has had on the trade. 

Reactions and reviews came in quickly as we noted previously.  Co-panelist Ed Winkleman posted his take on the evening at his blog, which you can read here.  He gave a terrific data-packed overview of art fairs, and his reflections follow up on some of the questions that were asked after the prepared remarks.  I’ve since found this write up by John Haber as well.

Eileen Kinsella wrote a cogent summary of the evening at ArtNet.  As she begins her article, “The art world can’t live with art fairs. The art world can’t live without art fairs.  That was the resounding takeaway. . . .”  The piece summarizes nicely the high points of the talk.

Kristina Nazarevskaia also penned an article about the event at galleryIntell entitled “The rise of the art fair: who wins and who loses.”  She focused on the disruptive aspects financially and developmentally, and the ethical and legal issues that those things raise.

My comments are reprinted below:

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Art Fairs and the Law

The interaction between a client and a dealer, whether at a brick and mortar gallery, or an art fair, is the commencement of a legal relationship.  It might be a successful relationship, it might be strained, but that’s what it is.  So what I want to talk about tonight are some of the ways that the formation of that relationship, and its rights and duties, might be affected by the fact that it is happening at an art fair.  My focus is going to be on US and NY law given my practice, but hopefully we can issue spot on things that can arise around the world. 

It seems obvious, but the starting point is to remember where you are.  In the absence of an agreement, in most instances for the sale of art the place of the transaction will supply the law that governs that transaction.  So New York law will govern Frieze, Dutch law will govern TEFAF, and Hong Long law will govern Art Basel Hong Kong.  

The nature of an art fair also creates practical differences in the formation of that relationship.  Consider: every art sale involves some sort of diligence, whether cursory on the spot or in depth, a negotiation of the essential terms of the transaction, and an actual exchange.  A contract, after all, is an exchange of promises: I will do this if you do that.  But every contract has explicit terms and implied terms, and the practical aspects of an art fair, and the law of the place where it is, will all go into what constitutes the resulting agreement.  

Diligence and preparation.  What does the buyer have time to investigate, and what are the consequences of proceeding with the transaction?

This is as much a matter of risk management as it is a legal question.  But whether you are a dealer at a show or a buyer, your starting point has to be the rules of the show.  Is there anything in the materials in which a buyer agrees to a set of terms incorporated by reference?  That is, when you attend or pay for something, do you end up signing a form that says something like “buyers agree to abide by the rules of the X show”?  If so, those rules will be a part of your deal. 

If you are a dealer, the same will hold true most likely at the application stage.  Even without a single buyer, the dealer is probably setting foot more firmly in the location of the fair.  Art Basel, for example has a choice of law provision in its application form in favor of the location of the particular show (Canton Basel, Florida, Hong Kong). 

What is it?  What representations and warranties are inherent to a sale, and how does the dynamic of an art fair complicate how you can rely on what you have been told? 

If you’re in a Uniform Commercial Code (UCC) jurisdiction, like New York, the mere exchange of information will give rise to enforceable obligations related to that exchange if there is ultimately an agreement.

UCC 2-313 provides that

(1) Express warranties by the sellerare created as follows:

(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goodsand becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.

(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.

(c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

(2) It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goodsor a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.

We can well imagine how this will play at an art fair rather than a gallery.  Hundreds of people are passing a booth each hour.  Routinized conversations ensue.  The sellers give a standard litany of descriptions-they think, if they can remember.  Buyers have spoken to dozens of people that day.  Was it this dealer, or another, that talked about the condition of the paining or the location of origin.  Which conversation becomes “part of the bargain”?  So where advance homework is wise in a storefront, some system for noting what you heard from whom—or what you told whom—may matter if and when a deal is struck. 

To illustrate the point, imagine a buyer who attends a fair of rare cars on Long Island.  He talks to several sellers at the fair, but he is taken with one conversation in particular.  This Chrysler LeBaron, he is told, belonged to a certain specific individual.  Because of that, he buys the car in a handshake deal.  The handshake representation about who owned it?  “John Voigt.”  You may well laugh at the idea of being as senseless as George Costanza, but the larger point is that once you shake hands, exchange promises, make a deposit, or otherwise commit yourself, what happened in that one conversation among many could turn out to matter a great deal. 

Consider a less ridiculous scenario.  In a conversation at a booth, the buyer observes a signature at the lower portion of an etching that looks to her, a sophisticated buyer, to be Picasso’s.  She asks the dealer, what is that?  “That’s signed Picasso” he says.  Or did he say “that’s signed BY Picasso?”  or did he say “that SAYS Picasso”?  Do either remember accurately.  The buyer purchases it.  In a way that is so much less likely with an auction catalogue, there is now an issue with WHAT 2-313 warranty was made.  This scenario happened to a client of mine in a more old fashioned context, and the particulars were more easily sorted out, but the dynamic of the show makes it one to look out for. 

Here too geography will matter of course, and whether a civil law or other jurisdiction implies warranties into a contract like this. Many don’t. 

Before we leave this topic, remember that an expression of VALUE is considered an opinion, and not a statement of fact within 2-313 or other law.  But a claim of comparable sales is an expression of fact. 

Did you make an agreement?

Let’s take a step back and talk a little about the basics of contract formation in this context.  With apologies to the lawyers in the room who have done their best to forget about first year of law school, it is worth repeating that an agreement does not consist of what you think it meant, it consists ordinarily of the objective manifestation of the parties’ respective intent to be bound. 

The New York Statute of Frauds, Gen. Obligations Law § 5-701, like most, requires that any agreement must be in writing to be enforceable if “By its terms is not to be performed within one year from the making thereof  or  the  performance of which is not to be completed before the end of a lifetime.” 

The key thing to remember here is not whether it IS performed within a year, but whether it can be.

So contrast: a visitor from a civil law jurisdiction sees a contemporary work at Frieze.  She has a structured payment coming to her own business, so she needs some time to make the full payment, but she is willing to commit.  So she says I’ll give you 50% now, 30% in six months, and the rest a year from today, after which I’ll pick it up.  The dealer, happy to obtain 80% within six months, agrees.  She’s never heard of the Statute of Frauds.  But six months later he’s heard nothing, and he sues.  Strictly applying the statute of frauds, he should win, right?  Strictly, no.  a year from today is not within a year.  Cases have gone to court over this issue, and the party seeking to enforce the agreement has not always prevailed.  Good news for them recently, although addressing a different aspect of the Statute of Frauds concerning auctions (this is the Jenack case), the New York Court of Appeals reserved some choice words for relying on the SOL disingenuously:

It bears repeating in such a case as this that: The Statute of Frauds was not enacted to afford persons a means of evading just obligations; nor was it intended to supply a cloak of immunity to hedging litigants lacking integrity; nor was it adopted to enable defendants to interpose the Statute as a bar to a contract fairly, and admittedly, made.

But here, seller in particular, beware. 

I started by teasing out some of the geographical implications on the choice of law that might apply to an art fair transaction.  But, as I like to phrase the foundation of all legal questions: so what?  Who cares where the fair is?

With regard to the most important aspect of any sale, title to the object, you will care a great deal.  Consider again a pair of scenarios, different only in geography.

First, in New York at an art fair views a striking Max Beckmannn domestic scene on consignment from an identified and reputable seller.  He views its condition, and notes its presence in the catalogue raisonné with approval.  The provenance provided is orderly and has no gaps or suspicious activity.  He buys the painting for $25 million, which is noted in the local and international press.

Two weeks later, he receives a letter from a lawyer.  The painting, the lawyer argues, was sold at the auction at Galerie Fischer in Lucerne in 1939 after being looted from a Jewish family in Frankfurt.  The provenance he was given was fictional; the catalogue raisonne confused this work with another version.  The lawyer’s client wants the painting back.  Oh, and the reputable and known seller has gone bankrupt and fled to Zimbabwe with our buyer’s money.  

Now imagine the same scenario, but at Art Cologne.  What happens, and why does it matter?

Assuming that the buyer really did not know of the painting’s history, the location will not only be important, it will probably be dispositive.  In New York and elsewhere in the United States, a thief cannot pass good title.  So purely as a matter of title, the buyer will lose the painting.  He may have some defenses like laches if the true owners knew of the painting’s intermediate location and failed to act, but that is necessarily an uphill battle, and his burden to prove AFTER a trial.

In Cologne, or Maastricht?  More than likely, as a good faith subsequent purchaser, he will keep it.  Even within the western art market, an increasingly seamless one, different places make different judgments about who should bear the risk of loss in that situation. 

World War II looting isn’t all that matters by location.  Assume fairs in the same two locations, New York and Cologne, but for a Giorgio di Chirico.  The same facts apply, but assume that in 1955, the true owner had located the painting in a Geneva gallery, sued for its restitution—and lost to a “good faith purchaser.”  Now, even in New York, the seller is not passing a thief’s title, he is passing adjudicated good title.  So the buyer may get the painting after all.

Lastly, assume the di Chirico hypothetical:  but fair number two is in Rome, where just last week, a new government passed a law declaring all Italian metaphysical art to be the national patrimony of Italy.

The buyer in New York may now be better off.  Unless it was imported to the US AFTER the patrimony designation (in which case there could be customs problems, and a visit from the Asset Forfeiture Unit of their friendly local U.S. Attorney office), it’s here and it’s probably not going back.  But within the EU?  That jurisdiction that favored good faith title may be out of luck. 

So, to foster the discussion, remember: where you are will affect whether there is a relationship, and how it plays out in the short term, and if people ever disagree.