"Any proposed cap would have long-lasting negative consequences on the charitable organizations upon which millions of Americans rely for vital programs and services."

"Leaders of big nationwide nonprofits sent letters to President Obama and Mitt Romney on Thursday urging the presidential candidates to reconsider their proposals to cut the charitable tax deduction."

Worst Lawsuit of the Week (UPDATED)

Rebecca Tushnet hands out the honors.

UPDATE:  The estate doubles down.

Randolph College: A Study in Governance and Decision-making

I mentioned recently that I have a chapter in a new book on academic museums.  One of the most interesting chapters in the book is co-authored by the President of Randolph College and Peter Dean, the Trustee who was most deeply involved in the decision to sell four paintings from the college’s collection.  I believe that, aside from a letter to the editor of Museum magazine a couple of years ago, it’s the first time they have publicly discussed their decision-making process.  In an Art Law Blog first, I conducted the following Q+A with Peter over the course of the last several days:

Q.         Let’s start at the beginning.  Can you tell us what led the school to decide to sell the paintings?

A.         To answer that, I need to provide some context. 

Since its foundation in 1891, Randolph-Macon Woman’s College had existed for the purpose of providing a single-sex undergraduate education for women.  By the first decade of this century it was becoming increasingly difficult to attract sufficient numbers of qualified young women with the ability to pay the tuition necessary to maintain financial sustainability.  Since the college’s operating costs went up over time, as all such costs do, the operating deficit was increasing.  This deficit was covered to some extent by donations, but most significantly by draws from the college’s endowment.  By 2006 the amount of this annual draw had increased to the point that it had become unsustainable.

In order to address this problem, the first and most important decision was taken in 2006: the college should become co-educational and admit male students.  This occurred in 2007, when the college’s name was changed to Randolph College.  However, the board of trustees recognized that, even with the admission of men and the implementation of cost reductions, the college would continue to incur a substantial operating deficit until enrollment grew and tuition discounting could be reduced.  This meant that the excessive draw from the college’s endowment would continue for several years because the absolute amount of funds required would not be reduced.  Since the amount of the draw was not going to be reduced soon, the only way to make the draw sustainable (preferably at a rate that is close to the recognized benchmark of 5%) was to increase the size of the endowment.

The pressure to find a solution was increased at the end of 2006 by the decision of the college’s accreditation agency to place the college on warning because of its financial condition.

One well-established way to increase the endowment would have been to conduct a capital campaign specifically for that purpose.  However, that option was ruled out at that time because the change to co-education as well as the inevitable change to the college’s name had, predictably, resulted in many alumnae being disaffected and the level of financial support from donations to decline, though they are now climbing again.  Recognizing the great difficulty of launching a successful capital campaign the board concluded that the required capital infusion would have to come from the sale of selected assets with the proceeds being placed in the general endowment.  No other group of assets represented anything like the value of the college’s art collection so that became the focus of attention, though it was hoped that a sufficient sum could be raised by a sale of a partial interest in selected works that would allow the college to continue to display the paintings for some of the time.   The college had extensive discussions with two institutions but was unable to work out an acceptable transaction.

That left the college with no alternative but to make the difficult decision to select a smaller number of paintings to be sold outright with the proceeds from sale being transferred to the college’s general endowment.  After extensive debate, that decision was unanimous.

Q.         That sounds to me like a board wrestling with a set of less than ideal alternatives, and then ultimately pursuing the path that, in their judgment, was least damaging to the overall well-being of the institution.  But to some in the art world, none of that matters.   In their view, it’s never okay for a museum to sell work and use the proceeds for general endowment purposes.  Those works, according to this view, are “held in the public trust” and therefore may not be sold.  Was the college aware of this point of view when it made its decision and, if so, what impact did it have, if any, on its thinking?

A.          Randolph College is an educational institution, whose principal purpose is to provide an undergraduate education to current and future students.  The college’s assets are held by it for that purpose.  This principle applies to all the assets of the college, whether in the form of real estate, buildings, equipment, financial assets, books and educational materials, individual works of art or artifacts, or collections of such items.   Unless an express condition has been imposed by a donor on a specific asset at the time of the gift, the college is free to manage its assets in accordance with its stated purposes.

The college owns its art collection outright and has never taken any steps to limit its authority to deal with individual items or the collection as a whole.

While it is surely true that in 2007 some members of the board of trustees were aware of the position taken by many in the art world that museum collections, at least those of accredited museums, are held “in the public trust”, there was never a suggestion by anyone on the board that such a concept applies to the Randolph College art collection. The short answer to your question is “no, the public trust point of view did not affect our thinking”.  What the “public trust” concept may mean in general, or to any other institution in particular, may be the subject of debate, but that would be in a different forum.

Q.         The other argument (besides the “public trust” argument) that the anti-deaccessionists like to make is that selling art will discourage future donations.  They say that, in the future, people will be reluctant to donate work because they’ll be afraid the school will turn around and sell it to pay the bills.  What do you make of that argument?  Did that factor into the decision-making process at all?

A.          I cannot speak for any other institution, but in Randolph College’s experience that has not been an issue.  Since the announcement of the college’s intention to sell four paintings, and the sale of one of them, the college has continued to receive donations of both additional art as well as financial contributions expressly for the purpose of acquiring art.  I am not aware of any decision by a potential donor to withhold a gift of art because of the proposed sale of selected paintings.

I would also add that we did not and do not intend to use sale proceeds “to pay the bills”.  Our intent is to use the proceeds to increase the size of the endowment so that it continues as a permanent asset providing financial support for all the College’s activities for the indefinite future.

The college’s art collection has been built up by a sustained and deliberate process of acquiring contemporary art by the college over a period of more than 100 years.  It has received gifts and bequests of art, but in general the acquisitions have been made by the college, and we expect this to continue.  One of its most recent acquisitions was of an important piece by Betye Saar, Nevermore, which was purchased earlier this year from the college’s 100^th Annual Exhibition of Contemporary Art: The Vision Endures.  Thirteen alumnae made donations towards that purchase.

Randolph College’s financial support comes from people who believe in its academic mission, which includes the use of its art collection as an educational asset, and in the case of donations of art from those who wish to add to that collection.  There is no doubt that the decision to sell four paintings upset many people, including alumnae and other supporters, and it was made very reluctantly.  We recognized that would be the case, but we believed that our fiduciary obligation was to do all we could to enable Randolph College to survive and thrive, and that if we did so we would continue to receive financial support.  We have every reason to think that judgment was and remains correct.

Q.         That was actually going to be my next (and final) question:  with the benefit of hindsight, do you still feel it was the right decision?  (It sounds like your answer is clearly yes.)  Would you have done anything differently?  What advice would you offer to a college or university facing a similar predicament in the future? 

A.         Yes, when the time came to make the decision, this was the right decision.  When we considered the challenges facing the college in 2006 and 2007, the need to put the college on a financially sustainable foundation, the educational purpose of the college, the duties of the board of trustees in overseeing the college’s affairs and, finally, the options available to us, we did not have a better option.  I would make the same decision.

In hindsight it is always possible to see ways in which a matter could have been handled differently.  I wish that the fact that the college owns its art collection directly and is not subject to any legal or other obligations restricting it from selling the paintings and transferring the proceeds to its endowment had been better understood by others who were not standing in our shoes.  Perhaps we could have done a better job of explaining that important point, and also that our obligations to the college as an educational institution take priority over other concerns.

Hindsight also requires us to consider the effect of the financial crisis that started in 2008 on the value of the college’s endowment.  Though the endowment value performed relatively well compared to some benchmarks, as was the case with other colleges it suffered a severe decline.  That decline reduces the amount of the sustainable draw, and exacerbates the need to increase the overall value of the endowment with the proceeds of sale.

What is my advice to other colleges or universities?

·        First, and at all times, focus on the primary mission of the institution, and make decisions with that in mind.

·        When it comes to the management of college assets of any kind, be very clear about ownership and control.  It is better to clarify that at the outset than have to try and explain it later on.

·        Before accepting proposals that, even if attractive in other respects, could result in actual or perceived restrictions on the college’s freedom to act and to manage its assets, ask all the necessary questions.

·        Do not let others try to set your agenda, but if a decision is made to establish a program or subsidiary institution that will restrict the use of assets, then make sure the issues are understood by the governing body, the administration and, to the extent they are involved, the faculty.

·        Educational institutions of all sizes, both public and private, are under increasing financial pressure.  Over the next several years they may have to examine more closely than before which assets are really essential to their mission and which are secondary.  Tough choices may have to be made and not all constituencies can be accommodated, so good preparation will be important.

Student Note on Deaccessioning

Sara Tam, In Museums We Trust: Analyzing the Mission of Museums, Deaccessioning Policies, and the Public Trust, Fordham Urban Law Journal, Vol. 39, No. 3, p. 849, 2012.

Lap Dances are Not Art

Says the New York Court of Appeals, in a 4-3 decision.

"[I]f we treated these crimes (and yes, their perpetrators) with some (albeit grudging) respect we may get closer to cracking them...and to properly defending our museums"

Tom Flynn continues to push back against the "thieves are stupid" meme.

"For more than a dozen years ... Knoedler & Company was 'substantially dependent' on profits it made from selling a mysterious collection of artwork that is at the center of a federal forgery investigation ..."

". . . former clients of this former gallery have charged in court papers."

"If a decision by the U.S. Court of Appeals for the Second Circuit is upheld, every museum in the United States that exhibits modern art created overseas could potentially be infringing copyright."

The NYLJ [$] has more on the big first-sale doctrine case I mentioned recently here.

Changes to the New York Consignment Statute

Recent posts by Sergio Muñoz Sarmiento and ARTINFO's Rachel Corbett remind me that I've been negligent in not mentioning the important changes to the New York consignment statute.  You can see the changes here.  The New York City Bar Association Art Law Committee has some good background here, and Nicholas O'Donnell has an excellent summary here.  To my mind, the most significant change is the provision allowing the artist to recover his legal fees if his lawsuit is successful.  That will have huge practical effects.

Rotterdam Update

In the New York Times this morning, the museum "denied accusations of sloppy security."

The ARCA blog is really the go to place for news on the theft.  Just keep scrolling.

ARCA founder Noah Charney had a piece at ARTINFO maintaining that "there is a good chance that the art was stolen only in order to be ransomed back to the victim ... or their insurers."

The Daily Beast's Megan McArdle says "the big mystery is ... why thieves continue to steal the stuff" (since it's so hard to sell).  She quotes retired FBI art theft agent Robert Wittman that "the general pattern is that the criminals who do these jobs, these heists, are good thieves, but they're terrible businessmen. That's what it comes down to."  (Full interview with Wittman here.)

Tom Flynn dissents from the view that the thieves are stupid.

Gagosian Drops Suit Against Perelman

Patricia Cohen has the story here.

"What do you do if you’re a dealer who has been sued by art handlers, banks, clients, another gallery, and your own artists?"

"Move to Kazakhstan."

Rotterdam Roundup

Lots more today on the big Dutch art heist.

The New York Times reports "the theft was the latest alarm about museum security in Europe, now a prime hunting ground for art thieves," includes a slide show of some of the stolen works, and also has an op-ed by Anthony Amore, director of security at the Gardner Museum, who says that art thieves "are often opportunistic and almost always shortsighted."  The Guardian's Edward Dolnick has a similar take:  "what are the thieves thinking? Less than you would imagine."

CBS News wonders if it was an inside job.

ARCA's Catherine Sezgin rounds up some additional reports.

And Crispin Sartwell speculates that the thieves "are art-rights extremists who are trying to free all the works of art that are imprisoned in museums. how can i help? let my paintings go. we need to bring the art back into the world and stop locking it up behind layers of bulletproof glass and impregnable marble."

"The big question every reader will want to know is, how and why does a person become an art forger?"

Vanity Fair:  "The Greatest Fake-Art Scam in History?"

The Art Market Monitor says they may the most boring art forgers in history.

"Those thieves got one hell of a haul." (UPDATED 2X)

Says the Art Loss Register's Chris Marinello, about a theft today from a Rotterdam museum. AP story here.

UPDATE: Derek Fincham: "Most likely of all, these beautiful clear windows made for such an easy target that the thieves stole first and will decide to worry about selling the works later."

UPDATE 2: More from the ARCAblog.

New Book on Academic Museums

I’m thrilled to have contributed to a new book on issues involving academic museums, A Handbook for Academic Museums: Beyond Exhibitions and Education.  You can find more information about it here.  My chapter is on issues regarding donor intent in the Fisk-O’Keeffe litigation.  I hope to have more about the book in the coming days.

"The thing with gentlemen’s agreements is that gentlemen tend to disagree, in retrospect, over what they meant."

The Observer's Rozalia Jovanovic reports on a copyright infringement lawsuit by photographer Rodrigo Pereda against artist Ivan Navarro.  Josh Baer expressed what's probably a pretty widespread view last week, writing that the suit "doesn’t seem to make much sense to me on the surface" because Pereda is suing "over the use of copyrighted photos of NAVARRO’s own sculpture."  But there's no doubt that a photograph of a work of art is an independently copyrightable thing; the artist isn't automatically entitled to use it.

Navarro's team seems to be setting up a work-for-hire defense, but, as the Observer piece notes:

"'If the photographer was in fact the artist’s employee, ... that’s probably a work made for hire and the copyright belongs to the sculptor,'" said Christopher Sprigman, a professor of intellectual property law at the University of Virginia. But if the photographer was an independent contractor and not an employee, Dr. Sprigman said it’s not a work made for hire situation unless there’s an agreement that says as much."

Oh, by the way: museums may not be able to display foreign-made, copyrighted works

It's a first-sale doctrine thing.  Sergio Muñoz Sarmiento explains.

"Charitable Deduction Under Fire"

Some gloom and doom from the Nonprofit Law Prof Blog.

"Can algorithms help explain art?"

Art.sy goes live.

"The most serious problem with copyright law is the length of copyright protection"

Judge Posner on some problems with copyright law.

"The work is part of a large cache of art attributed to Modernist masters that the F.B.I. is investigating as possible forgeries."

Another lawsuit involving the "Rosales collection."  Patricia Cohen has the details.

What is it with cruise ships and art?

Dan Duray points to the latest curiosity.

Knoedler Settlement

Knoedler gallery has settled one of the suits against it.

Are those sets and costumes held in the public trust?

To be accessible to present and future generations.

If not, why not?

It's a serious question.  How is it that only some assets of only some nonprofits come to be held in the public trust (and then only some of the time)?

What, exactly, is the mechanism?

Brant Borrows

Bloomberg reports that collector Peter Brant has been doing a lot of borrowing against his collection.  Felix Salmon has some thoughts here.

Is this a violation of Dr. Barnes's intent?

The new Barnes gets high marks from the United States Green Building Council.