Wednesday, October 31, 2007

Today's Salander News (UPDATED)

Bloomberg's Philip Boroff reports that First Republic Bank is claiming $40 million in loans to Salander-O'Reilly and a related entity are in default. A bank spokesman is quoted as saying the loans are "adequately collateralized."

Boroff calls the Salander troubles "the biggest U.S. art market mess since the price-fixing scandal at auction houses in the 1990s."

UPDATE: Over at, Andrew Goldstein has the definitive summary of what we know so far about Salander's "gradual implosion" over the past three years. The next court hearing is scheduled for Nov. 7.

Tuesday, October 30, 2007

Monday, October 29, 2007

An a-bridge-ment of his rights?

Bill Patry posts about a lawsuit brought by architect Santiago Calatrava against the city of Bilbao over changes to his famous bridge there, including the addition of an extension by Japanese architect Arata Isozaki. He claims that the new link "breaks the symmetry of the bridge, clumsily distorts the design... and damages the integrity of his work" and is "demanding €250,000 compensation and the dismantling of Isozaki's extension, or, if the new link remains, - €3m for 'moral damages.'" Bilbao's mayor responds: "If it's his intellectual property, let him take his intellectual property. We've had enough of the dictatorship of Calatrava saying we can't touch his little bridge. We've had enough of this superstar."

As Patry points out, under U.S. law bridges are not protected by the 1990 Architectural Works Protection Act "based on a concern that they and related transportation structures are too essential to the public to be tied up in copyright disputes. Moreover, even those works of architecture that were included were denied moral rights."

Revised Public Photography Rules (UPDATED)

Remember this summer's controversial proposed regulations concerning public photography in New York (which, among other criticisms, earned a city official a World's Worst Person designation from Keith Olbermann)? Well, the city is set to unveil a new set of proposed rules which should meet with much less resistance:

"Amateur photographers and independent filmmakers ... will not need to obtain permits or insurance under new rules being proposed by the Bloomberg administration. The rules, to be released on Tuesday for public comment, would generally allow people using hand-held equipment, including tripods, to shoot for any length of time on sidewalks and in parks as long as they leave sufficient room for pedestrians. The proposal ... was revised after a passionate outcry over the summer .... Under the first proposal, any group of two or more people using a camera in a public location for more than half an hour, and any group of five or more people using a tripod for more than 10 minutes, would have needed permits and at least $1 million in insurance."

Under the new proposed rules, shoots "that block traffic or leave less than eight feet of open walkway would require permits and a minimum of $1 million in insurance, as would those using vehicles and equipment that is not hand-held. Officials can waive the insurance requirement if an applicant can show that it would create a financial hardship. Filmmakers and photographers who want the comfort of proof that they are entitled to shoot in a public location would be able to get an optional permit, which does not require insurance."

The New York Civil Liberties Union is pleased.

UPDATE: So is Jim Johnson: "This is a resoundingly sensible decision even if the initally proposed regulations ... were stunningly idiotic. ... I guess my view is that the new regulations are a good move but that it would've been much more positive if the process of drafting them had been open rather than taking place behind closed doors in the Mayor's Office."

The proposed rules are now available here. Comments are due Dec. 13.

Sunday, October 28, 2007

"The art business used to be one where people would shake hands and pictures would go out for millions of dollars and everybody got paid"

James Barron and Patrick McGeehan have a story in tomorrow's New York Times on "the widening legal and financial crisis that has made [Salander-O’Reilly Galleries] the talk of the art world." They give emphasis to two factors in particular: (1) the $154,000 a month rent for the East 71st gallery space and (2) Salander's recent attempt to "expand beyond his long-established niche" -- i.e., "to show and sell old masters after years of specializing in 20th-century American art." The result is by now well-known:

"Salander is facing a tangle of lawsuits from angry collectors who say he and Salander-O’Reilly defrauded its customers and business partners. The lawsuits accuse him of falling millions of dollars behind on obligations like the rent and the payments he had promised the well-connected people who invested in paintings with him. One lawsuit described the gallery as 'nothing more than a Ponzi scheme.' Some artists’ estates say the gallery sold consigned paintings without their permission for less than the paintings were worth, and never paid them. Some artists’ relatives say they have discovered works entrusted to Salander-O’Reilly in other galleries or museums. The Manhattan district attorney’s office says it has been reviewing complaints about Salander-O’Reilly, and at least one artist’s family has gone to the police."

The article closes by connecting this "tumble" with the recent Berry-Hill Galleries bankrupcty:

"To some dealers, Salander-O’Reilly’s problems bring to mind a scandal that rocked the art world in 2005 and culminated in a bankruptcy filing by another East Side gallery, the Berry-Hill Galleries. ... Ian Peck, the chief executive of a firm that arranges financing for dealers and collectors and that was Berry-Hill’s lead lender, suggested that the Berry-Hill bankruptcy and the Salander-O’Reilly situation point up the pitfalls of the art market, in which it can be hard to figure out who owns a painting, much less what it is really worth."

Saturday, October 27, 2007

Friday, October 26, 2007

"It’s a real New York story"

I forgot to link to this earlier in the week, but Carol Vogel had a great story in The New York Times about a woman who found a million dollar Rufino Tamayo painting in the garbage. Turns out it was stolen in 1987 and it's now been reunited with its rightful owner, who will be selling it at Sotheby's next month. The finder will receive a promised $15,000 reward from the seller, plus an undisclosed (but "smaller") finder’s fee from Sotheby’s.

Costco Counterfeits

The LA Times reports that Costco has settled a lawsuit brought by Cao Yong, "a Chinese immigrant painter of popular romantic cityscapes," alleging that it was selling phony prints of his work and providing fake certificates "signed and numbered by the artist." Terms of the settlement were not disclosed. According to the artist's lawyer, between seven and 15 prints were sold. It seems the suit was brought just a couple of weeks ago.

You can see samples of Cao's work here. Sergio Muñoz Sarmiento is not impressed.

This isn't Costco's first Art Law Blog appearance. See here.

Arrest in Goya Theft

From the AP:

"A truck driver who stole an art masterpiece from an unattended transport truck, then claimed he found it in his basement was charged with theft .... Steven Lee Olson, 49, was charged with stealing 'Children with a Cart,' a 1778 painting by famed Spanish artist Francisco de Goya, federal prosecutors said Wednesday. The painting was insured at a value of about $1 million. ... The painting was being trucked to the Solomon R. Guggenheim Museum in New York City from Ohio's Toledo Museum of Art last November. It was stolen as the transport drivers spent the night at a Pennsylvania motel. They discovered it missing the next morning. Within days, Olson contacted federal authorities through an attorney to say he found the painting in his basement, said U.S Attorney's office spokesman Michael Drewniak. After a lengthy investigation, authorities determined that Olson, a self-employed truck driver, had lifted the piece himself, Drewniak said."

Thursday, October 25, 2007

Is it me? (UPDATED)

I'm becoming more and more confused by the Fisk lawsuit.

First, Judge Lyle ruled in July that Fisk cannot sell O'Keeffe's Radiator Building or Hartley's Painting No. 3 (at least that's how Jonathan Marx reported it in The Nashville Tennessean).

So she set a Sept. trial date on the museum's claims that Fisk violated the conditions of O'Keeffe's gift — and therefore that the entire Stieglitz Collection should be turned over to the museum.

When Fisk and the museum tried to settle those claims (in a manner that would have put about $30 million in the school's coffers), she rejected it, in large part because she believed a better offer had emerged from the Crystal Bridges Museum.

But now, when Fisk comes to get her blessing to accept that better offer, she sets another trial date . . . for February of next year. This, despite the fact that the university has said it expects to run out of money some time in December.

I suppose it's possible that the news reports aren't accurately describing the nature of Hobbs's rulings, but, if they are, I'm at a loss to understand what's going on.

UPDATE: It's not just me.

Another Randolph College Suit

A group of 19 students, donors, patrons, and former employees of the school's Maier Museum filed for injunctive relief yesterday seeking to block the sale by Randolph College of four paintings from its collection. The paintings were removed from the museum on Oct. 1 and are scheduled for sale at Christie's in next month's auctions. None of the four pieces was bought by the trust that is the subject of another lawsuit filed over the summer, but opponents of the sale are attempting to link the two by claiming that "the entire collection of art in the Maier Museum is so interconnected ... that the entire collection should be protected from sale" (see paragraph 54 of the just-filed complaint). I'm no expert on the relevant law in Virginia, but that seems like a stretch to me.

Christa Desrets has lots more in the Lynchburg News & Advance.

"This is not a restoration; it's a reconstruction of my work"

The Chicago Tribune reports on the latest "standoff highlight[ing the] increasing tensions between artists and art owners over control of their works." In 1981, Yaacov Agam was commissioned by the building's owner to create a sculpture for a downtown office tower. Over time, "Chicago's harsh weather took its toll on the sculpture" and "the colors had faded and the paint had begun to peel." So, in 2000, the building owner began the process of restoring the work. Agam claims "the restoration is not faithful to his original vision" and is threatening to sue if the owner returns the work to the site (it's been down for the restoration work for more than two years). Agam's lawyer concedes the work "is likely not protected by the Visual Artists Rights Act because his work was created before 1990 and he no longer owns it," and so relies on an argument that will be much trickier to pull off, namely that "the restorer has created a new work that may be considered a derivative under federal law" (which, if true, would be a violation of Agam's exclusive rights under copyright, rather than VARA).

Wednesday, October 24, 2007

More on the Dead Celebrities Bill

The New York Times has a story today on the new California right of publicity legislation. The Wall Street Journal Law Blog weighs in here. American Photo magazine's David Schonauer says "the new law is intended to help one company, Marilyn Monroe LLC. The law was pushed through the California legislature almost unnoticed by the public, who in large part will gain nothing by it. The real losers are photographers who photograph celebrities and think they still own the rights to their images."

Boteros Lifted

The AP reports that "burglars broke into a foundry in Tuscany over the weekend and made off with seven bronze statues by Colombian artist Fernando Botero" worth a total of $5 million. Apparently "an alarm at the factory had not been activated, as it was often accidentally set off by animals." To which Callen Bair says: "The words 'negligent' and 'lawsuit' come to mind."

Matter News

In today's Cleveland Plain Dealer, Steven Litt reports that a number of the so-called Matter Pollocks "contain paint ingredients for which there is no known historical record during Pollock's lifetime": "Since 2002, three scientific studies have found that roughly two-thirds of the 32 newly discovered works contain pigments and resins not known to have been marketed or patented until as recently as the late 1980s." In related news, Litt reports that forensic scientist James Martin, who studied a number of the works but has been saying he would not discuss the results unless Matter promised not to sue him, "has agreed to speak publicly about the bulk of his research for the first time" at an IFAR-sponsored symposium entitled "Are they Pollocks? What Science Tells Us About the Matter Paintings," Nov. 28 in New York.


In the wake of Salander-O'Reilly's deepening troubles, Ian Charles Stewart wonders "whether, with the growing number and size of transactions, a more formal, and compulsory, oversight system is necessary for the Art world to protect individual buyers and sellers."

Tuesday, October 23, 2007

A Defense of Alice Walton

From Callen Bair.

Today's Salander News

From the New York Sun:

"The judge presiding over the legal battle surrounding an Upper East Side art gallery known for its extensive Renaissance art collection, Salander O'Reilly, toured the gallery for two hours yesterday to inspect the condition and safety of the gallery and its art, following his order last week to padlock the front door and not allow any artwork in or out of the space. ... The New York Supreme Court judge, Richard Lowe III, called for a formal inventory of the art and an analysis of the gallery's computer records."

More from The New York Times and the New York Post.

Monday, October 22, 2007

More on the Fractional Gifts Bill

I've now had a chance to look at the proposed Promotion of Artistic Giving Act, and it does appear that, if passed, it would live up to its name and bring the practice of fractional giving back from the dead. You can read the bill here.

I thought it might be useful to look back at my post from last September when the current law was passed ("The End of Fractional Gifts?") and see how things would be affected. Excerpts from the earlier post are in italics:

First, under the new law, … no deduction will be allowed unless all interests in the artwork were owned by the donor and the donee immediately before the contribution (unless everyone who holds an interest in the work makes a proportional contribution).

This would remain unchanged.

Second, if the collector fails to contribute her entire interest to the same museum before the earlier of (i) 10 years from the initial contribution or (ii) the collector's death, then all previous tax benefits are recaptured -- with interest, as well as a 10 percent penalty.

This would be changed. The deadline would now be 9 months after the collector's death (which is when the federal estate tax return is due).

Third, recapture also applies if during the 10-year period (or the period ending on the collector's death if sooner) the museum fails to take "substantial physical possession" of the artwork - reversing the Winokur rule that the "legal right" to possession is sufficient - and "used the property in a use which is related to" its charitable purpose. …

This would remain unchanged, except that, since the 10-year period would no longer apply, presumably the museum would have to take possesson at some point prior to the nine-months-after-date-of-death deadline. (For more on the "substantial physical possession" requirement, see here and here.)

Fourth, and worst of all, the new law provides that the fair market value of any additional contributions shall be determined by using the lesser of (a) the fair market value of the work at the time of the initial contribution or (b) the fair market value of the work at the time of the additional contribution. This creates two problems for collectors. One, they're deprived of the benefit of any increase in the value of the artwork over time. Say I donate 25% of an artwork to a museum at a time when the work is worth $8 million and, several years later, when the work is now worth, say, $20 million, donate the remaining 75%. Under the new law, my deduction for the latter contribution will be limited to $6 million (75% of the value at the time of the initial contribution), even though what I have donated is an asset worth $15 million (75% of $20 million, the value at the time of the later contribution).

This "lesser of" rule would be completely eliminated. In its place, the new bill provides only that, in the case of annual additional contributions in excess of $1,000,000, the fair market value will be determined by the IRS Art Panel.

Even worse - and this is the part that will likely mean the end of fractional giving to museums unless changed - the law sets up a potential mismatch between the work's taxable value and its deductible value. To see this, suppose that tomorrow a collector gives a museum a one-half interest in a painting valued at $5 million. Her current deduction will thus be $2.5 million (putting aside the usual percentage limitations on charitable deductions). Suppose further that she dies several years from now, leaving the remaining one-half interest to the museum in her Will - but imagine that now the value of the painting has gone up to $6 million. Now the estate tax charitable deduction will be limited to $2.5 million (one-half of the value of the painting at the time of the initial contribution), but the full $3 million (one-half the painting's current value) will be includible in the collector's estate, leaving estate tax due on the $500,000 "spread." Ouch.

This too would be eliminated - and it's this that would mean the end of the end of fractional giving. By dropping the "lesser of" rule, this "mismatch" problem disappears as well. The estate tax charitable deduction would go back to being identical to the amount includible in the collector's estate.

The same problem applies to gifts as well. Using the same example, if rather than leaving the remaining one-half interest to the museum in her Will, the collector decides to complete the gift during her lifetime, she will have to pay gift tax on - but will get no income tax deduction for - the same $500,000 spread.

Again, this problem would be solved by the elimination of the "lesser of" rule.

The new law applies to contributions made after August 17, 2006.

The changes made by the new bill would apply as of the same date.

So, all in all, the proposed bill would succeed in undoing most of the damage done by the Pension Protection Act. Now let's see if it passes.

Saturday, October 20, 2007

"They're the most hypocritical bunch of looters I've ever run across"

Yale's Jock Reynolds isn't thrilled with how the O'Keeffe Museum has conducted itself vis-a-vis Fisk University.

Friday, October 19, 2007

The art world was litigious today

So what happened in the two high-profile art-world lawsuits mentioned earlier today?

In the case of the Barnes, not much. Judge Ott merely set a briefing schedule: the Barnes lawyers have 30 days to submit theirs, with responses from the parties opposing the move due 30 days after that.

But that didn't mean the 10-minute hearing was without interest. The Philadelphia Inquirer reports:

"A routine court session over the latest attempt to block the Barnes Foundation art collection from leaving Merion for Philadelphia turned to drama today when a lawyer accused the judge of doing too little, too slowly, in the case. 'Let's cut through it,' said Mark Schwartz, representing the Friends of the Barnes Foundation, a group of Merion neighbors and art enthusiasts opposing the relocation. 'You . . . are the master of your own courtroom.' An irritated ... Ott scolded Schwartz for 'grandstanding' for the standing-room-only audience of more than 50 Friends members. When the lawyer persisted, Ott asked sharply: 'Do I look like an idiot to you?'"

Lee Rosenbaum offers some sane advice: "Attorney's rule-of-thumb: Don't antagonize the judge whom you hope will rule in your favor."

In the other major case, a New York State Court Judge ordered Salander-O'Reilly Galleries closed "until further notice" (and the locks changed just in case) and also ordered an inventory of the gallery’s holdings. The New York Times story is here. Bloomberg reports that a lawyer for Salander said "a bankruptcy filing is likely."

"The art world is litigious today" (UPDATED)

Callen Bair:

"A judge will either order the padlock to come off Larry Salander's 71st Street gallery or deal it the final death blow at a hearing today. My money's on the latter. ...

"The saga of the Barnes Foundation drags on: The Friends of the Barnes and the foundation's trustees will go to court today in a last ditch effort by the former to keep the galleries in Merion, Pennsylvania. My prediction: The 'friends' will be disappointed."

UPDATE: Lee Rosenbaum hears from the Barnes friends:

"The Preliminary Objection [filed by the Barnes Foundation's lawyers] attempts to shift the focus from the substantive issues raised in its petitions filed by the Friends of the Barnes and Montgomery County, to whether the petitioners should be permitted to raise any issues at all [i.e., their legal 'standing']. The document refers to the petitioners' claims as 'scurrilous' and asks Judge Stanley Ott to make the petitioners pay for its legal costs."

Thursday, October 18, 2007

"They would have been ravishing shows" (UPDATED)

In the New York Sun today, John Goodrich has a review of the "indefintely postponed" Salander-O'Reilly shows. It begins:

"As one of the city's premier galleries for over three decades, Salander-O'Reilly has mounted numerous museum-quality shows featuring the likes of Rembrandt, Turner, and Constable. The art world is currently holding its breath over the latest developments at the gallery. A rash of lawsuits brought against the gallery has resulted in the indefinite postponement of what was to have been its most spectacular project yet: two exhibitions of master artworks organized in association with Whitfield Fine Art, a London gallery specializing in Italian Baroque art."

And he has this to say about the $100 million "Caravaggio:"

"Following its recent cleaning, 'Apollo the Lute Player,' long thought to be a copy, has recently been identified by authorities as an autograph work. It seems even to predate the two previously known versions of the subject, because the artist's corrections — visible in X-rays — and the canvas's close conformity with a description of the painting from around 1625 suggest that it is the original. (Sotheby's, which auctioned the canvas in 2001, has questioned the attribution.) Like most works here, it was to be available for purchase, for a reported $100 million."

In the end, "the immense, unique reward of these two exhibitions is that they allowed one to experience and reconsider great art in an intimate setting. [They] would have been ravishing shows. One hopes that, in whole or part, they will at some point become available for public viewing."

UPDATE: Bloomberg reports that, by court order, the gallery is being padlocked until at least tomorrow. The Maine Antique Digest discusses the efforts by Whitfield to keep the (alleged) Caravaggio out of the reach of Salander's creditors ("The facts are very simple. Salander does not own the Caravaggio, and did not pay for the restoration. It was loaned to the Galleries specifically for the Show. It was not for sale and is not for sale.").

Fisk News

The Nashville Tennessean reports today that Judge Lyle is expected to rule on Monday on whether to allow Fisk University to move forward with its sale to the Crystal Bridges Museum.

State Attorney General Bob Cooper issued a statement this week that he "takes no position at this time as to the merits" of the proposed sale.

Wednesday, October 17, 2007

The Promotion of Artistic Giving Act

Lee Rosenbaum quotes from today's press release announcing the new fractional gift legislation:

Pension Protection Act of 2006
1. Requires that all fractional gifts be completed within 10 years of the initial donation.
2. Forces donors to value their fractional gifts at the lowest appraisal value of the piece at the time of the donation of the original fraction.
3. Applies estate and gift tax rules to fractional giving.
4. Requires that museums have "substantial physical possession of the property" during the donation process.

Promotion of Artistic Giving Act of 2007
1. Requires that all fractional gifts be completed within 9 months of the death of the donor.
2. Allows for fair-market value deduction for subsequent fractional donations, but prevents inflated appraisals by requiring review of donated fractions valued at $1 million to be reviewed by the Art Advisory Panel of the IRS.
3. Repeals PPA estate and gift tax provisions relating to fractional giving.
4. Retains the PPA requirement that museums have "substantial physical possession of the property" during the donation process.

Barnes Update

At the end of a lengthy post speculating about the Barnes's possible change in status from an educational institution to a museum, Lee Rosenbaum notes the following:

"Incidentally, the date by which the Barnes must file its response in Montgomery County Orphans' Court to petitions opposing its planned move was postponed to this Friday. I'm assuming that its lawyers will argue that the case has already been definitively decided and that the petitioners should not be granted legal standing to request reconsideration by Judge Stanley Ott. It might still be up to the judge, however, to decide whether changed circumstances warrant his taking another look. Time and the lawyers will tell."

Salander Show "Indefinitely Postponed" (UPDATED)

The New York Sun reported yesterday that two big shows set to open today would either "make or break" Salander-O'Reilly Galleries. This morning the Sun reports that "break" has the edge:

"The opening of two art shows today at [Salander-O'Reilly Galleries] has been indefinitely postponed and may be cancelled .... Mr. Salander said his partner in the show, Clovis Whitfield, a London art dealer, told him he had decided to withdraw his paintings from the show, including a Caravaggio ... which the two aimed to sell for $100 million. Mr. Whitfield told the Sun ... that in this 'uncertain situation' he couldn't continue to be involved in the show. ... 'We were not quite sure if the gallery would stay open for the show,' Mr. Whitfield told the Sun. 'We were very concerned for the welfare of our pictures and those of our clients.'"

More from Bloomberg: "At 5 p.m. yesterday, guards were videotaping the art as it was being removed. Lawyers walked in and out, two hours before guests were expected at the gallery .... An unidentified young man who left the gallery with Salander struck a Bloomberg News photographer. Salander unsuccessfully tried to restrain the man. The latest developments cast doubt on the future of the 31- year-old gallery."

UPDATE: Callen Bair wonders "what took Whitfield so long to figure out that no upstanding collector is going to buy an exceptionally overpriced — it may be a masterpiece, but it's still overpriced — painting of questionable provenance?"

Tuesday, October 16, 2007

Fractional Gift News

Lee Rosenbaum is reporting that the rumors I mentioned over the weekend are true: legislation is about to be introduced to address some of the problems created by the recent changes to the fractional gift rules. Says Lee:

"A press conference will be held tomorrow in Washington to introduce the 'Promotion of Artistic Giving Act of 2007.' According to the press release, the bill would 'require that donors must complete their fractional gifts within the donor's lifetime [rather than within 10 years], require an IRS review of donations' appraisal value for gifts valued at over $1 million and eliminate the unnecessary estate and gift tax implications relating to fractional giving contained in [the 2006 Pension Protection Act].'"

I take it the last is a reference to what I was calling the "mismatch problem" in discussing the changes last year.

Salander Hail Mary? (UPDATED)

From page one of The New York Sun this morning:

"Two shows of paintings set to open to the public on Wednesday may make or break the legacy of both an Upper East Side art gallery known for its extensive Renaissance and Baroque art collection, Salander-O'Reilly, and its well-known owner, Lawrence Salander. Mr. Salander ... faces mounting legal trouble with as many as seven suits filed against him and the gallery in New York alone in the last two months and as many as 15 in the last year."

One of the shows includes a painting Salander is attributing to Caravaggio and hopes to sell for $100 million. One problem, however: "When the painting was last sold in 2001 at Sotheby's for $110,000, it was attributed to the 'Circle of Caravaggio.'"

The New Criterion's James Panero says the work has "a backstory worthy of a pulp novel":

"Clovis Whitfield bought this work in 2001 from Sotheby’s in London, where it was identified as 'Circle of Caravaggio.' Subsequent cleaning and analysis have led several experts to declare that this is in fact the work of the master himself. (Sotheby’s still disputes the revised attribution.) If so, it would be one of three versions of the same image now in circulation, with the most famous one in the State Hermitage Museum in Saint Petersburg and a second in the Wildenstein Collection. ... If it is indeed a Caravaggio, this painting will be the first one up for public sale in the United States in a century."

Back to the Sun, which has this summary of some of the existing litigation:

"Seven civil lawsuits have been filed in U.S. District Court in Manhattan and in New York State Supreme Court in Manhattan in the last two months. The suits are similar in charging that Mr. Salander had co-purchased art works for his gallery with business partners, but the returns he promised to share with them from the sale of the works rarely materialized. ... On October 3, Bank of America filed a suit against the gallery for defaulting a promissory note for $2 million. On October 11, American Express Centurion Bank filed a suit against Mr. Salander and the gallery to recover nearly $700,000 in unpaid credit card charges made by the gallery and its principal. In August, an art collector and hedge fund manager, Roy Lennox, filed a suit against Mr. Salander for $14.6 million, for Mr. Salander's failure to repay his investments. A suit filed on October 1 calls for nearly $18 million from a woman who agreed to store part of her 'significant' art collection with Mr. Salander, according to the complaint, but before they could agree on a final contract for possible future sales, Mr. Salander had already sold some of the pieces."

The story also notes that "a spokeswoman with the Manhattan District Attorney's office ... said the office has received complaints that they are investigating, but no criminal charges have been filed."

UPDATE: More from Mario Naves in this week's New York Observer in a piece entitled "The Enron of the Art World?":

"A friend has long suggested that an Enron-like scandal has been in the offing for years .... Should the Salander situation deepen, the consequences for the art market could be huge. Skepticism about the reliability of dealers may send big money straight to auction houses, bypassing the gallery system. Lawsuits similar to those levied against Salander are, if not guaranteed, then not out of the question. Anyone believing that Salander-O’Reilly is the only gallery built upon a house of cards believes wrong. The art world is almost constitutionally inclined to scandal—remember the Rothko affair?—and is prone to dubious financial doings. Prestige and money, or, rather, the promise of lots of it, doesn’t encourage good behavior."

"It's a mess"

From the Seattle Times:

"Former Seattle art dealer Kurt Lidtke, who was convicted of stealing artworks and still owes victims more than $400,000, left a tangle of deception in his wake that may never fully be unraveled. The scale and duration of his misdeeds are unprecedented in the Northwest art trade and have rattled a community accustomed to doing business on trust and a handshake. Lidtke is set to be sentenced today in King County Superior Court, facing up to 43 months in prison for selling consigned artworks without paying the owners .... He was charged last year with 20 counts of theft, including failure to pay state sales tax, and he pleaded guilty to nine counts."

The article asks, "So where does that leave Lidtke's victims?" and goes on to correctly point out that "even when artworks are located, ... it may not be easy to recover them. That's because if the original owners authorized Lidtke to sell the works for them on consignment, the buyer can claim legal ownership. Then it becomes a collection problem [against Lidtke] for the original owner."

Benezra on Fractional Gifts and Deaccessioning (UPDATED)

Richard Lacayo has posted an excellent two-part interview with SFMOMA Director Neal Benezra, which includes the following:

LACAYO: Everybody complains about the change in the federal tax laws governing fractional gifts. [This is an arrangement whereby collectors give a museum a partial ownership interest in a work, with the right to dislay the work for a part of each year, while the collector takes a partial tax break.] Has that had a big impact on you?

BENEZRA: We have more fractional gifts than any museum in the country, something like 800. That change has had an unbelievably negative impact on our acquisition program, a profoundly negative impact. The difference in the number of gifts from one year to the next has dropped off by 80% or something.

He also calls deaccessioning "the third rail of American museums": "You have to be very careful how you do things. But I've seen how it can be done well."

UPDATE: I didn't realize the interview wasn't finished. There's a part three up today, every bit as interesting as the first two, and which includes the following:

LACAYO: What one thing would make your job easier?

BENEZRA: I wish the government would reassess this fractional gift thing. This was something that was not broken and didn't need to be fixed. There was not abuse. Certainly not here there wasn't.

And something has to be done about insurance. We're in earthquake territory. We're in a 10-year-old building that's as rock solid as could be. But because of our geography, we're having a terrible time with insurance. ... There's a federal indemnification program for international loans. What we're lobbying very hard for now is that the indemnification program should work for domestic loans as well.

Not Over (UPDATED 2X)

The Fisk University deaccessioning controversy just got a little more interesting. From the AP tonight:

"Lawyers for the Georgia O'Keeffe Museum ... filed a legal challenge late Monday that seeks to prevent Fisk University from selling a stake in the collection donated by O'Keeffe .... The cash-strapped school wants to sell a 50 percent share of the collection to a museum founded by Wal-Mart heiress Alice Walton for $30 million .... The O'Keeffe Museum ... referred in its filing to an earlier finding by Chancellor Ellen Hobbs Lyle that O'Keeffe's 'donation was not given to Fisk to use as a source of revenue.'"

Lyle had promised an expedited ruling on the proposed sale to Walton's Crystal Bridges "later this month."

UPDATE: According to this article in this morning's Arkansas Democrat-Gazette, the Tennessee Attorney is also opposing the sale, "saying that Fisk first wanted to sell only two paintings and now the proposed transaction with Crystal Bridges includes the entire collection."

UPDATE 2: Theo Emery has more in Wednesday's New York Times: "Fisk’s president, Hazel O’Leary, said the university was being 'held hostage' by the litigation. 'Their intention is to bleed us to death,' she said. 'They know that time is not on our side here.'"

Monday, October 15, 2007

Art and the Nobel Prize

Three American economists won the Nobel Prize in Economics today for their work in the area of "mechanism design." GMU's Alex Tabbarok uses the following example to try to explain what mechanism design is:

"Suppose that you are selling a rare painting for which you want to raise the maximum revenue. There are two potential buyers, Tyler, who values the painting at $100,000, and Alex who values it at $20,000. The problem would be simple if you knew this information - you would then set the price at $99,999 and Tyler would buy[,] maximizing your revenue. But how much Tyler and Alex value the painting is their own private information. How then should sell the painting? One possibility that springs quickly to mind is an auction. In a standard English open-cry auction Alex and Tyler will bid for the painting and the bids will keep rising until Alex is forced to drop out at $20,001. Thus the auction earns you $20,001. Not bad but is this the maximum revenue possible? Remember that Tyler values the painting at $100,000 so you could be leaving a lot of money on the table. What else can you do?"

Read the rest of his post to find out.

"Even in plain daylight, the French cannot be trusted with their cultural treasures"

Benjamin Ivry has some further details on one of several recent cases of art vandalism in France:

"On November 16, a verdict will be handed down in the much-publicized trial of Rindy Sam, a Frenchwoman who identifies herself as an artist. Last July, Ms. Sam kissed a painting by American modernist Cy Twombly, which resides in a special collection at Avignon’s Museum of Contemporary Art. Ms. Sam smeared the white canvas with lipstick. Since her oral tribute, museum technicians have been unable to remove the lipstick stain from the canvas, previously valued at $2.8 million. Ms. Sam has explained that all she did was offer a kiss as a 'gesture of love.' The museum and the collector who retains ownership of the painting are not endeared, demanding compensation to the tune of over 30,000 and 2 million euros respectively. Additionally, a prosecutor wants to fine Ms. Sam 4,500 euros for her action. Only Twombly himself ... has kept his compensation demand to the scale of a state fair kissing booth, asking for just a single euro as 'symbolic' reparation."

Sunday, October 14, 2007

Through the grapevine

Nonprofit lawyer Gene Takagi spoke with a senior staff person at the Association of Art Museum Directors and reports that changes to the fractional gift laws may be on the way.

Saturday, October 13, 2007

Bio-art Guilty Plea

A professor of genetics at the University of Pittsburgh who was facing federal charges for sending bacteria to artist Steve Kurtz (the subject of the recently released movie “Strange Culture”) has pleaded guilty to a misdemeanor charge. As part of the deal, he agreed to testify against Kurtz in his upcoming trial. Story in The New York Times here.

Art and Vandalism

Michael Kimmelman: "It’s tempting to look for a grand, unified theory of vandalism, but the specific motivations of the people who attack art are clearly as diverse as the objects they choose to hurt."

Friday, October 12, 2007

Joint Authorship Decision

Major joint authorship decision in the Second Circuit this week in Davis v. Blige. Summary in the New York Law Journal here. Shorter summary from Eugene Volokh: "You can get a nonexclusive license up front from just one [co-owner], without the others' permission. But once you infringe you can't get a retroactive license from just one -- you'd have to get forgiven by all of them."

Bill Patry says the decision is "disastrous" and is hoping for a do-over.

Mistakes were made

You may have heard that, when four soon-to-be deaccessioned paintings were removed from the Maier Museum at Randolph College recently, a local police officer, on hand for security, told a student there had been a bomb threat at the museum. Story here. Yesterday Lynchburg Commonwealth Attorney Michael Doucette issued a statement on whether criminal charges will be brought against the officers involved. (Answer: No. "I see nothing in the facts of this case that suggests that the officer in question acted out of malice or with any criminal intent. ... In reaching this conclusion, I in no way condone what the officer did. The Lynchburg Police Department has appropriately dealt with this officer administratively. Additionally, the Lynchburg Police Department has publicly acknowledged that the officer made a mistake....")

"Trade Your Picasso for a Degas - And Pay No Tax"

That's the headline of a piece that ran in yesterday's New York Law Journal [$] about "like-kind exchanges" under Section 1031 of the Internal Revenue Code. It began: "Can I really sell or trade my art and pay no tax? Well, Yes! You can sell your precious artwork now and later exchange it for another artwork without paying capital gain taxes on the sale."

Well, maybe. This is a really complicated question, but let me just say that it's not nearly so clear that Section 1031 applies to exchanges of art. I'll mention just two issues. First, the statute limits such exchanges to property held for productive use in a trade or business or for investment. It's not at all clear that the typical collector holds his artwork as an "investor." (Section 1031 does not define the term.)

Second, to qualify under Section 1031, the work must be exchanged for "like-kind" property. It's unclear how that applies in the art context. The IRS has ruled, for purposes of a different section of the Code (Section 1033), that lithographs were not "similar or related in service or use" to artworks in other media. Would the same result apply under Section 1031? Can an Abstract Expressonist painting be exchanged for an Old Master painting? Is that more "like-kind" than a contemporary painting and a contemporary drawing? No one really knows for sure.

So it seems to me that, in many cases at least, a collector will have a pretty heavy burden of showing (a) that he holds the artwork as an investment and (b) that he's exchanging it for like-kind work. There are also a number of technical requirements that have to be met, including filing IRS Form 8824 disclosing the transaction. On top of all that, the Treasury Department just a few weeks ago issued a report urging more scrutiny of 1031 exchanges generally ("In the wake of the Treasury report, 'I think you can expect increased IRS enforcement and oversight activity,' said Louis Weller, national director of real-estate transaction planning for Deloitte Tax LLP in San Francisco. IRS officials are 'aware of a lot of pushing-the-envelope activity by taxpayers.'").

Thursday, October 11, 2007

California Right of Publicity Law Enacted

The Los Angeles Times reports that Gov. Schwarzenegger has signed the pending bill to expand publicity rights of dead celebrities. More here from NPR's All Things Considered, which sums up the law as "essentially say[ing] that famous people can pass on the rights to their image to anyone they want — and the right exists even if they died decades ago."

Chase v. Stendhal

The New York Law Journal publishes the decision [$] in artist Saul Chase's breach of contract victory, in New York Supreme Court, over Stendhal Gallery. Chase entered into a one-year agreement with the gallery, but, when they failed to pay him his share of the proceeds from three sales, he terminated the agreement. The gallery argued that "the parties agreed to put [Chase's] share of profits from the sales of his works towards the costs of maintaining" his exhibition, but, on summary judgment, the Court held that was "contradicted by the plain language of the Agreement," which provided that the only costs Chase was responsible for were framing and a share of transportation costs. The Court also held that Chase was acting within his rights when he terminated the agreement as a result of the gallery's breach.

One other element of interest. Maya Stendhal disputed that she is personally liable under the agreement because she signed for Stendhal Gallery, not in her individual capacity -- she signed above a signature line which said "for Stendhal Gallery." The Court rejected her argument, for two reasons: (1) there was no indication anywhere in the agreement that Stendhal Gallery is a corporate entity ("corp.," or "inc.," or "ltd.") and (2) there was no evidence that Stendhal Gallery was even a corporate entity (the gallery was incorporated under the name "Stendhal New York, Inc.," not "Stendhal Gallery").

Is a Gauguin nude sexual harassment?

Eugene Volokh points out that the University of California's online Sexual Harassment Training makes a distinction between "artwork by a recognized artist" (which is generally not considered sexual harassment) and run-of-the-mill "explicit pictures" (which can be, "even in your personal work space"). He says that's "a fairly accurate statement of what courts are likely to do" (though, as he notes in this law review article, there have been a number of harassment complaints over art by recognized artists), but thinks this "pose[s] serious First Amendment problems ..., both related to the law's vagueness and to the law's breadth."

Forgery Arrest

From this morning's New York Sun:

"A Massachusetts woman has been arrested on charges that she sold a forged Milton Avery painting that ended up in a New York gallery. Angela Hamblin ... was arrested yesterday morning on a charge of mail fraud related to the forged Avery .... The case will be prosecuted in U.S. District Court in Manhattan. Prosecutors say that in April, a New York gallery purchased the painting for $200,000. The purported Avery was titled 'Summer Table, Gloucester,' according to a criminal complaint filed by a veteran theft investigator at the FBI, James Wynne. A later inspection by the gallery, which is not identified in legal papers, disclosed that the painting was not authentic. The complaint said the painting had come from a North Carolina dealer who had purchased it on eBay from Ms. Hamblin .... Ms. Hamblin is additionally accused of trying to palm off other forgeries as the works of famous artists, including Franz Kline, J.M.W. Turner, and Juan Gris."

Hamptons Heist

From yesterday's New York Post:

"A crew of amateur art thieves stole roughly $600,000 worth of paintings from the Hamptons mansion of a former Revlon CEO and torched the home to cover up the heist, prosecutors said yesterday. Officials said the group's ringleader ... began working as a caretaker at the $6 million Quiogue mansion of businessman Jerry W. Levin during a renovation project in late 2005."

The scheme fell apart when the thieves began to contact art dealers to try to sell the pieces. One of the dealers they contacted had originally sold one of the stolen paintings to Levin and had worked with his insurance company to value the works.

Wednesday, October 10, 2007


From the Washington Post:

"A Richmond area high school art teacher who was fired ... after officials learned he created paintings with his bare buttocks and other body parts has sued school officials. Stephen Murmer said in a federal court complaint filed [last week] in Richmond that his firing from Monacan High School ... violated his First Amendment rights. The lawsuit, filed by the American Civil Liberties Union, seeks unspecified damages. School officials investigated Murmer after seeing a video on the Web site YouTube in which Murmer, clad in a swimming thong and a Groucho Marx fake-nose mask, demonstrated how he applies paint to his backside and presses it onto a canvas."

Needless to say, this has made the nation's headline writers very happy ("Va. Teacher Fired for Buttocks Art Sued," "Teacher Fired For Producing Paintings With Buttocks," "'Buttocks' Artist Sues After His Odd Work Gets Him Fired," "ACLU files lawsuit for 'the butt artist'").

The complaint is here. You can see the YouTube video here, and a sample of his work here. Murmer has a website (, of course) here.

Shields v. Gross

Peter Schjeldahl's review of the Richard Prince retrospective now up at the Guggenheim refers to Prince's "1983 photograph of an infamous Garry Gross photograph ... of a naked Brooke Shields, aged ten, her prepubescent body oiled and her face given womanly makeup," and says Prince "enjoyed the spectacle of Shields’s failed later effort, in a lawsuit, to quash Gross’s picture, which her mother had authorized for four hundred and fifty dollars." The New York Court of Appeals decision in that case is here. The consents her mother had executed provided, in pertinent part:

"I hereby give the photographer, his legal representatives, and assigns, those for whom the photographer is acting, and those acting with his permission, or his employees, the right and permission to copyright and/or use, reuse and/or publish, and republish photographic pictures or portraits of me, or in which I may be distorted in character, or form, in conjunction with my own or a fictitious name, on reproductions thereof in color, or black and white made through any media by the photographer at his studio or elsewhere, for any purpose whatsoever; including the use of any printed matter in conjunction therewith.

"I hereby waive any right to inspect or approve the finished photograph or advertising copy or printed matter that may be used in conjunction therewith or to the eventual use that it might be applied."

"The Walton Effect"

Lee Rosenbaum has an article in the Wall Street Journal today on Wal-Mart heiress Alice Walton's role in the recent deaccessioning controversies involving Thomas Jefferson University, Fisk University, and Randolph College.

"My whole body of work involves trespassing"

The Providence Journal had a story last week on artist Michael Townsend, who constructed "a secret studio apartment in a storage area in the Providence Place mall, where he and others stayed on and off for nearly four years." He ended up under arrest, but pleaded no contest to trespassing and was sentenced to probation. The paper's editorial board is "glad the law will treat the squatter lightly. ... The apartment’s amusement value far outpaces any loss of face to the mall or its crack security team — whose snookering only goes to show that guards have higher priorities and real criminals to protect us from."

Townsend has a web site about the project here. Greg Allen notes another body of work by Townsend.

Morning Vandalism News

French police have arrested five people in connection with the Monet incident at the Musee d'Orsay over the weekend. Reuters reports that they're all between 18 and 19 years old.

Meanwhile, The New York Times reports this morning that French prosecutors have requested a $6,300 fine and a civics course for "a woman who planted a lipstick-red kiss on an all-white painting by the American artist Cy Twombly." The woman says, "It was an act of love; when I kissed it, I wasn’t thinking. I thought the artist would understand." According to the Times, "a verdict is expected in a few weeks." Earlier post here.

Tuesday, October 09, 2007

More Vandals

On the heels of last week's incident at the Musée d'Orsay, Carol Vogel has the following in today's New York Times:

"A grainy video of four masked vandals running through an art gallery in Sweden, smashing sexually explicit photographs with crowbars and axes to the strain of thundering death-metal music, was posted on YouTube Friday night. This was no joke or acting stunt. It was what actually happened on a quiet Friday afternoon in Lund, a small university town in southern Sweden where 'The History of Sex,' an exhibition of photographs by the New York artist Andres Serrano, had opened two weeks earlier."

Here is an old review of the show from ArtForum. Here is more on Serrano.

Monday, October 08, 2007

Authentication Suits

Kate Taylor had a great piece in Friday's New York Sun on the recent spate of lawsuits against art authentication boards. It begins:

"Few art historical issues are as contentious, or have as dramatic and immediate effects in the marketplace, as those of attribution and authentication. In fact, lawsuits are so common that many experts require owners to sign a statement promising not to sue before they will even look at a work and offer an opinion."

She goes on to note that "in France, the principle of droit moral gives an artist — and his heirs, for 70 years — substantial control over his name and his works, including the right to challenge the authenticity of a work purporting to be his. But in America, no one, technically not even the artist himself, has a legal right to decide whether a work is authentic or not. Instead, the power of an expert or an appointed board of experts follows only from their general credibility and knowledge of the artist's oeuvre."


Via ArtsJournal, I see that The Art Newspaper is reporting that Christie's "has unlawfully sent a [$6 million] Rubens masterpiece to America, in breach of UK export regulations. In an unprecedented move, Culture Minister Margaret Hodge has deferred an export licence for [the work], despite the fact that the painting is already in New York. UK buyers are now being offered an opportunity to match the price."

Christie's says "a human error led to the accidental shipping of the picture to a client without completion of the appropriate export licensing process." To which Derek Fincham responds:

"Some error. One would think a work of this magnitude would be double checked. Christie's is subject to criminal penalties .... A fundraising effort may now begin. It's uncertain whether the funds can be raised ... or even if the New York buyer would consider selling the work. If she does not, the work will have certainly lost value, and I'd anticipate Christie's would be subject to a civil suit brought by the buyer. Though the work cannot be recovered because the US does not enforce the UK export restrictions, it will not be able to be sold or even travel to Europe in all likelihood."

More from Callen Bair here.

Vandalized (UPDATED)

From tomorrow morning's New York Times:

"Intruders broke into the Musée d’Orsay early Sunday and one of them damaged a work by ... Claude Monet, the latest in a series of acts of vandalism and thefts at cultural sites in France. Christine Albanel, the minister of culture, said the intruders left a tear close to four inches long in the painting 'The Argenteuil Bridge,' from 1874. ... She said the intruders, believed to be four men and a woman, appeared drunk and 'left various bits of filth' before 'one of them stuck a fist into the magnificent masterpiece by Monet.' The alarms sounded and museum personnel arrived quickly, but the intruders were able to flee, Ms. Albanel said."

Lee Rosenbaum has some suggestions for Ms. Albanel: "How about toughening security, so that drunken revelers can't so easily enter one of France's premier art museums, let alone manage to vandalize a masterpiece and escape, despite the sounding of an alarm?"

UPDATE: Callen Bair spots an "embarrassing" trend:

"In August, thieves raided the Musée des Beaux-Arts in Nice and made off with four canvases, including Monet's Cliffs near Dieppe and Alfred Sisley's The Lane of Poplars at Moret. It wasn't the first time these paintings had been lifted: The Monet and Sisley were stolen from the same museum in 1998 in a heist masterminded by its own curator and two accomplices; the Sisley had also been taken from Marseille twenty years earlier. August's theft was not even a month after a woman kissed a Cy Twombly painting on view at the Collection Lambert in Avignon, leaving a lipstick smudge on the white canvas .... And last year a man assaulted a reproduction of Marcel Duchamp's original urinal from 1917 with a hammer at the Pompidou Centre after urinating on the same piece at an exhibition in 1993 ...."

Saturday, October 06, 2007

Hammer Time (UPDATED)

At the Wall Street Journal Law Blog, Peter Lattman describes "a bubbling trademark spat" between the Hammer Museum in Haines, Alaska, and the Hammer Museum in Los Angeles:

"The Alaska Hammer, created in 2000, is dedicated to the oldest human tool .... The museum took in $8,104 in revenue last year (half from T-shirt sales). The L.A. Hammer, the renowned fine-art musuem formerly known as the Armand Hammer Museum of Art, dropped the 'Armand' and now calls itself the Hammer Museum. In 2006, it booked about $10 million in sales. Last year, the L.A. Hammer applied to trademark the name .... When Dave Pahl, the founder of the Alaska museum, found this out this past summer, he filed his own trademark application .... Both applications are pending at the U.S. PTO."

Law professor Eric Goldman is quoted as saying the two can coexist with the same name if the PTO determines there is no likelihood of confusion.

UPDATE: Professor Bainbridge has the backstory on the L.A. Hammer.

Recovered (UPDATED)

The BBC reports that police in Glasgow have recovered a $60 million Leonardo da Vinci painting that was stolen four years ago. Much more from Callen Bair, who's "sure there's a screenwriter already drafting a script."

UPDATE: Callen adds in an update that "not one, but two, of the [four men arrested in connection with the theft] appear to be lawyers."

Friday, October 05, 2007

Strange Culture

The Steve Kurtz story makes it to the big screen today. The New York Times reviews it here. From the review:

"In 2004 Steve Kurtz ..., an associate professor of art at the State University of New York, Buffalo, was preparing an exhibition on genetically modified food for the Massachusetts Museum of Contemporary Art when his wife, Hope ..., died in her sleep of heart failure. But when paramedics noticed petri dishes and other scientific paraphernalia in the home, they alerted the F.B.I.; within hours Mr. Kurtz found himself suspected of bioterrorism, his home quarantined and his wife’s body removed for autopsy."

For background on the Kurtz story, see here. Much more from the New York Sun, which says a trial "is expected to convene in 2008."

Thursday, October 04, 2007

Dealer sentenced

Jason Edward Kaufman reports in The Art Newspaper that Manhattan dealer Edward Merrin was sentenced to one year’s probation and eight months of home confinement, and ordered to pay about $50,000 in fines/restitution, in a federal case that charged him and his son Samuel with defrauding a client out of millions of dollars. The case against the son continues. Kaufman says that "in light of the scale of the allegations, the sentence is being seen by some as a 'slap on the wrist.'"

As Kaufman describes the scheme, the dealers entered into an agreement to sell the client's antiquities according to a "cost-plus" arrangment: "This meant that the [client] would pay the Merrin Gallery’s cost of acquiring the art plus an agreed commission ranging from 10% to 20% .... The indictment alleges that by misrepresenting the gallery’s acquisition cost, the Merrins fraudulently increased both the 'cost' component and commission component of the prices they charged the [client]. The government prosecuted the Merrins for mail fraud, which makes it a felony to transmit fraudulent information across state lines."

Wednesday, October 03, 2007

Right of Publicity Update

USA Today had a story this week on the ongoing battle over posthumous rights of publicity. It begins: "The use of Marilyn Monroe's iconic face to sell merchandise has prompted her only heir to push for laws giving estates of deceased celebrities sole control over marketing their famous personas. The feud is playing out in New York and California. It pits the rights of estates to approve any use of the celebrity's image against the First Amendment right to use images and words of famous people for purposes such as research and art." And it includes this summary of the legislative state of play:

"In New York, the right to market the images dies with the celebrity. A bill to hand estates power over the images stalled .... The bill likely will be reintroduced.

"In California, where lawmakers are more sympathetic to entertainment industry issues, newly passed legislation clarifies and expands a state law that allows estates to control the marketing of deceased celebrities' images. Gov. Arnold Schwarzenegger has not said whether he will sign the bill."

Tuesday, October 02, 2007

Art and Kids

Still catching up on things I missed over the last couple of weeks, Kelly Crow had an interesting article in the Wall Street Journal on kids who are collecting Warhols instead of Beanie Babies. This paragraph caught my eye:

"But there are upsides to mixing kids and fine art. Families can reap potential tax benefits by putting art in a trust set up for their children. The move can side step a federal estate tax of up to 45% of the art's value if children had instead inherited it after their parents die. There are several disadvantages to trusts: If a piece of art is valued at $1 million or more, parents may be taxed when they move the work into the trust. The strategy also could hinder parents from selling or loaning a work."

So I asked Tara Kaplan of our firm's trusts and estates department what she thought. She wrote the following:

"Although, to a great extent, the paragraph is accurate, it's also a little misleading. As you will see from my discussion below, you just can't accurately describe the real tax consequences of putting art into a trust for your children in one paragraph.

"To put the discussion in context, let's start with some basics about our federal estate and gift tax regime. Under current law, $2 million of an individual's estate passes free of estate tax, regardless of the beneficiary. If an individual has made taxable gifts during his or her lifetime, the amount shielded from federal estate tax is reduced by the amount of lifetime taxable gifts up to $1 million. Currently, any amount subject to federal estate tax (beyond the $2 million exemption) is subject to estate tax at a flat rate of 45%. The exemption is set to increase to $3.5 million in 2009. In 2010, the estate tax is scheduled to be repealed. Under the current legislation, however, the estate tax repeal ends in 2011, unless Congress enacts new legislation. This means that, without further legislation, in 2011 (and thereafter) the estate tax exemption and tax rates will return to their pre-2001 levels ($1 million exemption per individual with a top estate rate of 50%). Although no one can predict what Congress will do, most estate tax practitioners believe that new legislation in some form will be enacted, which leaves us with a very uncertain environment for any gift and estate tax planning at this time.

"In contrast to the federal estate tax, the lifetime gift tax exemption is not set to change. Rather, the lifetime gift tax exemption is frozen at $1 million for individuals and $2 million for married couples who split gifts. This amount is cumulative over an individual's lifetime. (If certain requirements are met, an individual also may make tax-free annual gifts of $12,000 -- or $24,00 if married and the gift is split -- indexed for inflation. These 'annual exclusion' gifts are in addition to, and do not use up any part of, the lifetime gift tax exemption amount.)

"With those basics in place, let's turn back to the Journal article:

Families can reap potential tax benefits from putting art in a trust set up for their children. The move can side step a federal estate tax of up to 45% of the art's value if children had instead inherited it after their parents die.

"Although such a lifetime transfer to a trust, if properly structured, would effectively sidestep a 45% estate tax, we must also consider the potential gift tax consequences. If a gift tax were assessed on the transfer to the trust, we'd end up prepaying transfer taxes (albeit, because of the difference in the way gift taxes and estate taxes are applied, the effective gift tax rate would be lower than the estate tax rate). While it is true that a gift removes subsequent appreciation from the donor's estate, given the uncertainty of the future of the estate tax, there may be no estate tax liability to be paid at the individual's death at all. In that case, a completely unnecessary gift tax would have been incurred.

"This also leaves out income tax considerations. The income tax implications could be significant if the trust (or the child beneficiary) ultimately determines to sell the art. One consequence of transferring property to a trust is that the child (or the trust created for the child's benefit) will receive the property with a 'carry-over' basis. Generally speaking, 'carry-over' basis means that the donee of the gifted property has the same cost basis as the donor; it simply 'carries over' when the gift is made. If the art has appreciated in the hands of the donor/parent and if a gift tax is paid with respect to the gift, this carry-over basis is adjusted upward by the portion of the gift tax attributable to the appreciation element of the gift. If the artwork has appreciated above the basis of the work in the hands of the donee/child (or trust), if and when the child (or the trust) sells the artwork, a 28% federal capital gains tax liability (plus any state taxes) would be incurred on the gain. By comparison, under the current estate tax regime, if the child inherits the property at the parent's death, the basis would be 'stepped-up' to the fair market value at the time of the parent's death and the capital gains taxes on any subsequent sale would thus be lower or even eliminated.

"Continuing with the article:

If a piece of art is valued at $1 million or more, parents may be taxed when they move the work into the trust.

"Again, that statement is true, but it gives an incomplete picture of the relevant tax consequences. It seems to suggest that the $1 million exemption is applied on a 'piece' by 'piece' basis. In fact, however, since the lifetime gift tax exemption is cumulative, if multiple works of art are gifted during an individual's lifetime, a tax may be assessed on a transferred item even though, taken by itself, it is worth less than $1 million. It is not the value of the particular work of art being transferred, but rather the cumulative value of the lifetime gifts made by the transferor. It is also worth remembering that married couples who elect to split gifts may transfer artwork valued up to $2 million (in the aggregate) without incurring gift tax.

"And finally:

The strategy could also hinder parents from selling or loaning the artwork.

"Not only could the transfer of the artwork 'hinder' the parents from selling or loaning the artwork once it has been transferred to a trust, in order to remove the artwork from the parents' estate, the trust instrument would have to prohibit the parent (though not the trust) from selling or loaning the artwork. The Internal Revenue Code provides that if the transferor retains the right to determine who may enjoy the trust property, the trust assets will be taxed in the transferor's estate. Accordingly, if a parent transfers a work of art to a trust for his or her child, but still has the ability to direct the distribution of the property or indicate who may use the property, the trust asset will be includible in the transferor parent's estate at the date of death value, which would eliminate all the tax-planning benefits of having made the gift.

"So, all in all, it's a little more complicated than that paragraph in the Journal suggests. In addition to the above, let me leave you with three final thoughts:
  • Art cannot take care of itself and rarely throws off income. Therefore, when setting up these types of trusts it is not only the artwork that needs to be transferred, but cash as well. One needs to consider whether funds need to be placed in the trust to cover storage, conservation and insurance costs.
  • Unless the trust is pre-funded with a large amount of cash to cover expenses for the duration of the trust (which of course also increases the value of the initial gift), it is important that the trust is structured in such a way that future gifts of cash or other liquid assets to cover expenses will qualify for the annual gift tax exclusion (currently $12,000/individual and $24,000/married couple, indexed for inflation).
  • Finally, a common misconception is that a parent can transfer the art to a trust and continue to hang the art in the family living room. To remove a work of art from the parent's estate, the parent must relinquish dominion and control over the art and give up all beneficial enjoyment of the artwork. The art should be treated separate and apart from any art which remains within the parent's estate, including for example having it insured under a separate policy in the name of the actual owner, not under the parent's policy. This may be especially difficult while the child is a minor, living under the same roof as the parent. In that case, the safest route would be to hold the art in storage (and not in the parent's storage) until the child is living out on his or her own."

Randolph College News (UPDATED)

Carol Vogel reports in today's New York Times that the board of Randolph College has voted to sell George Bellows’s “Men of the Docks” (1912) and three other paintings this fall at Christie’s. "The auction house estimates that the Bellows alone ... could bring in $25 million to $35 million .... The college’s goal is to raise at least $32 million over all to shore up its endowment and reduce a steep operating deficit." As Christa Desrets explains in the Lynchburg News & Advance, these paintings were not purchased with funds from the Louise Jordan Smith trust (on which see here):

"The college filed legal action in August to determine whether it could sell or share 36 pieces of art ... that were bought from a trust bequeathed in Louise Jordan Smith’s will. None of the four pieces of art to be sold were bought with the trust, [a college spokeswoman] said, so they would not be affected by that action. 'These paintings are without restriction,' she said. 'Two were purchased from the college, and two were gifts. But they don’t have any restrictions on sale.' However, litigation that 11 opponents filed last month in response to the college’s request asks the court to declare that the entirety of the collection is interconnected and should be protected from sale or sharing."

Lee Rosenbaum is not happy ("shame on Randolph College ... for deciding to sell the signature work of its Maier Museum" and "shame on Christie's for abetting this flagrant violation of professional principles of collections stewardship"). Nor is Callen Bair ("a sad way for Randolph to celebrate its museum's centennial") or Richard Lacayo ("a terrible decision").

UPDATE: Lee is now reporting that the director of the college's Maier Museum has resigned.

Monday, October 01, 2007

"What remains of the work mimics nothing so much as a miniature golf course or the median of a shopping mall"

In today's Wall Street Journal, Kelly Crow reports on another VARA controversy, this one involving Yahoo and the artist Sharon Louden. Seems that, in 2001, Louden's "Reflecting Tips, 2001" was installed on the front lawn of the company's Sunnyvale, Calif., headquarters, pairing "real wetlands grass with artificial cattail-like reeds." When the grass recently grew too high, Yahoo sent in a grounds crew to cut it down -- and they ended up damaging the work ("Nearly half of the wires were severed in the process."). It's unclear, but it sounds like there may have been previous damage as well, unrelated to this bout of weed-whacking ("Over the years, other wires had become bent to the ground or twisted into shapes."). Then, last spring:

"Yahoo tore up the lawn. On April 24, Yahoo's legal director, Tad Ravazzini, emailed Ms. Louden's dealer and her lawyer photographs of what they called the 'improved site,' which showed closely mowed green grass where the sedge had been, plus a new border of perennial flowers. ... The artist howled. Mr. Kamm, the dealer, called his lawyer. ... 'What remains of the work,' lawyer John Cahill wrote on April 30, 'mimics nothing so much as a miniature golf course or the median of a shopping mall's parking lot.'"

In a May 14 letter, Cahill "accused Yahoo of breaching its agreement with the artist and violating a number of laws," including VARA. Yahoo responded that it was "'willing to dedicate reasonable resources' to working with Ms. Louden to improve the site," but talks apparently stalled over the summer, and remain stalled today.

I'd be interested to see how the contract dealt with these issues. I'm assuming the surrounding weeds were not included as part of the definition of the work. But did the contract include any specifications about the surrounding site? Sometimes public art contracts provide that the artist gets to approve any proposed alteration of the site "that would affect the intended character and appearance of the work." Is there anything like that here?