Bonus Episode: Berkshire Museum Litigation Update (It’s not over!)


Katie and Steve get an update from attorney Nicholas O’Donnell about the status of the lawsuit he brought on behalf of certain members of the Berkshire Museum for breach of fiduciary duty, among other claims, in relation to the Museum’s sale of much of its valuable art collection to pay for operating and capital expenses.  While much of the art has been sold, the members fight on.  Nick explains the unusual posture of the case to our listeners.

*Note: On Monday, the Massachusetts Appeals Court ended the Berkshire Museum deaccessioning legal saga by upholding a decision by the court that members of the Berkshire Museum do not have standing to sue the Museum challenging the conduct of its Board of Directors.

Resources:

https://berkshiremuseum.org/2015site/wp-content/uploads/2018/09/September-12-Update-on-second-tranche-sales.pdf

https://www.berkshireeagle.com/stories/two-unsold-berkshire-museum-works-slated-for-november-auction,551589

https://blog.sandw.com/artlawreport/berkshire-museum-tries-to-end-run-pending-appeal-but-member-plaintiffs-decline-to-be-bullied

https://www.berkshireeagle.com/stories/justices-tease-out-nuances-in-berkshire-museum-appeals-case,549457

https://www.berkshireeagle.com/stories/court-3-from-lenox-dont-have-right-to-challenge-museum-boards-conduct,552017


Bonus Episode Transcription

Steve Schindler: Hi, I’m Steve Schindler.

Katie Wilson-Milne: I’m Katie Wilson-Milne.

Steve Schindler: Welcome to the Art Law Podcast, a monthly podcast exploring the places where art intersects with and interferes with the law.

Katie Wilson-Milne: And vice versa. The Art Law Podcast is sponsored by the law firm of Schindler Cohen & Hochman LLP, a premier litigation and art law boutique in New York City. Art Law Podcast listeners, as you may remember, Steve and I have covered on several occasions the controversy the Berkshire Museum, located in Pittsfield, Massachusetts, has been involved in regarding the deaccessioning of its most valuable works of art. The context of this controversy was that the Berkshire Museum having fallen on hard times, as many institutions in postindustrial parts of America have, came up with what they called a “New Vision” plan, by which it was going to raise tens of millions of dollars to revamp the museum both physically and in terms of its mission. And it was going to raise this money in large part by selling off a substantial number of its most valuable works of art, many of which had been with the museum since its very beginning and were by significant artists like Norman Rockwell and Alexander Calder. So, we’ve covered this both from the beginning of the controversy through the settlement that occurred between the museum, the Massachusetts attorney general, which by way of its regulation of Massachusetts non-profits regulates the Berkshire Museum as well. And they settled this controversy with the approval of the Massachusetts Supreme Judicial Court, ultimately permitting these sales through Sotheby’s with some restrictions. And so many people think, “okay, well the sales have happened. Some may continue to happen. Case closed.” But one of the lawsuits that this controversy spawned is ongoing. So, we’re going to hear from one of the lawyers working on that case today.

Steve Schindler: We’re lucky to have with us today, an author and lawyer, Nick O’Donnell. So, Nick, as some of our listeners, know we’ve been covering the controversy of the Berkshire Museum from our first episode and you are the representative of one of the plaintiff groups and there has been a recent development. We thought, we’d ask you about it. Just tell us who you represent and what has recently happened?

Nicholas O’Donnell: Sure. So, I represent three individuals who live in Berkshire County, who are members, paid members of the Berkshire Museum. And on their behalf, we brought suit, a little less than a year ago to enjoin the sale that had then been scheduled for November of 2017 and at the same time, there was the lawsuit brought by the Rockwell family and some other residents of Berkshire county. As your listeners know or don’t know, that injunction was denied in November of last year. At the same time my client’s lawsuit was dismissed. So, we appealed that dismissal right away. The briefing on that appeal happened over the course of the winter and then we’ve been waiting for an oral argument since. That oral argument happened Tuesday, September 4th.

Steve Schindler: Yeah. And why was your lawsuit dismissed? What was the rationale for that decision?

Nicholas O’Donnell: The Supreme court which is the trial court in Massachusetts dismissed our claims holding that my clients did not have standing to challenge the sale or the decision of the museum.

Steve Schindler: What does that mean just in general?

Nicholas O’Donnell: Sure. So, it basically means that the standing is, for a lack of better phrase, ruling that you’re the wrong person to complain about what’s going on.

Steve Schindler: And your clients are, when you say they are members, as if I’m a member of the Metropolitan Museum of Art. I pay some money every year and I get some perks for that.

Katie Wilson-Milne: They have no voting rights.

Nicholas O’Donnell: There are no voting rights in the articles of incorporation or in the bylaws. One of the tensions that came up in the hearing or one of our arguments anyways, which I note has been unsuccessful so far, is the bylaws – well, put this way, the museum argued that when you read the bylaws that when it refers to members who have certain rights under Massachusetts law, they are limited. But members of a non-profit have standing to sue a non-profit corporation if it implicates their rights as members.

Katie Wilson-Milne: But doesn’t that typically refer, I mean, I’m much more familiar with the New York case.

Nicholas O’Donnell: Sure.

Katie Wilson-Milne: Doesn’t that refer to members “capital M” in terms of voting members who elect the board.

Nicholas O’Donnell: Typically, it does and the question that has arisen in this case, again which has been this far held against us, is when you read the bylaws, they use the terms in a not always consistent fashion. The museum argued that because the bylaws empower the trustees with all the powers of members and what that means is the trustees and only the trustees are members with a capital M. What we pointed out, and one of the things that I want us to realize – there are other places in the bylaws where the trustees are instructed that they have to become members and maintain a membership, which wouldn’t make any sense if they were the same group of people because they were already be members by virtue of being trustees.

Steve Schindler: What are your clients seeking now? Now that the Supreme Judicial Court of Massachusetts as we know has blessed the agreement between the attorney general and the museum and has allowed sales to go forward up to $55 million in a complicated way. And some of those sales have been made. They haven’t all been made but what assuming for a moment that your clients were allowed to proceed with their lawsuit. What is it that they are trying to get?

Katie Wilson-Milne: Yeah, situate us now in the timeline. We’ve talked to our listeners about this but they – and they may think this saga is over. So, explain to them, why it’s not.

Nicholas O’Donnell: So, the decision by the single justice of the Supreme Judicial Court last spring was a cy près case. And it relaxed or modified the explicit restrictions on certain works of art and held that the museum could now sell them unencumbered by those restrictions. What we’re seeking is a couple of things. We still maintain in our original lawsuit pointed to those restrictions as one reason those objects should not be sold but not as the only reason, because we alleged and argued that the sale, the deaccessioning, more broadly is an abuse of the trustees’ fiduciary duty to the museum.

Katie Wilson-Milne: And that wasn’t an issue dealt with.

Nicholas O’Donnell: And it was not, in our position, that issue was not resolved by the SJC decision. The SJC decision says, “these numerated restrictions are now gone. And thus, those restrictions are not the obstacle to the sale.” And obviously some of those sales have taken place. Our point is the broader context of this decision and what it does to the museum as originally devised as in part a significant art museum was inconsistent with the trustees’ duties. And because we have brought the action in part derivatively on behalf of the corporation, we’re not seeking any damages for our clients in their own right. Really what we are trying to do, in the same sense we were trying to do when the case started is compel the trustees to account for this “New Vision,” which now is even more pressing in the sense that there’s obviously been a significant amount of proceeds that’s been recouped and what that means in connection with the underlying mission of the institution, we feel like is still an unanswered question.

Katie Wilson-Milne: And is the AG, which has now, you know as our listeners may remember, realigned itself with the museum after the settlement in the cy près proceeding was approved. What is their position? The museum and the AG?

Nicholas O’Donnell: So, the attorney general after the settlement, filed a letter in our appeal, in which the attorney general was not a party – we did not sue the attorney general – arguing that the superior court’s decision should be firm because in the attorney general’s view, our clients lack standing, that the oversight of the non-profit corporation in the attorney’s general’s view is the exclusive province of the AG, which is not quite so in that there are exceptions to that as everyone at the hearing acknowledged and the boundaries between those things is one of the things that’s at issue. And the attorney general at the hearing last week was allowed to present a brief oral argument essentially made the same point.

Katie Wilson-Milne: So, they are litigating a substantive issue on appeal, which is the standing issue rather than just saying, “this is totally moot. Why are we even talking about this anymore?”

Nicholas O’Donnell: Right, the attorney general has said essentially, we are the ones with exclusive standing. We did our job as reflected in our approval of the settlement and that should be the end of it. They didn’t take the occasion, they haven’t yet in our case, to sort of articulate it as substantive defense of the settlement itself. It essentially said because we did it, that is enough and we shouldn’t have to talk about it anymore.

Steve Schindler: And what was the museum’s position?

Nicholas O’Donnell: The same. That corporate members are not us, that the attorney general is the only one who had any rights to complain about this and the attorney general told them it was okay.

Katie Wilson-Milne: So where is it going now?

Nicholas O’Donnell: So, the appeals court took the argument under advisement. So, we will find out at some point their decision.

Katie Wilson-Milne: And what you will find out is whether you can go forward.

Nicholas O’Donnell: Is whether our lawsuit is reinstated or not. Yes.

Katie Wilson-Milne: All right. Well, we will keep our listeners posted. Thank you, Nick, for your update.

Nicholas O’Donnell: I shall do. Thank you very much.

Steve Schindler: And that’s it for today’s podcast. Please subscribe to us on iTunes or wherever you get your podcasts and send us feedback at podcast@schlaw.com. And if you like what you hear give us a five-star rating. We are also featuring the original music of Chris Thompson. And finally, we want to thank our fabulous producer Jackie Santos for making us sound so good.

Katie Wilson-Milne: Until next time, I’m Katie Wilson-Milne.

Steve Schindler: And I’m Steve Schindler bringing you the Art Law Podcast, a podcast exploring the places where art intersects with and interferes with the law.

Katie Wilson-Milne: And vice versa. The information provided in this podcast is not intended to be a source of legal advice. You should not consider the information provided to be an invitation for an attorney client relationship, should not rely on the information as legal advice for any purpose, and should always seek the legal advice of competent counsel in the relevant jurisdiction.


Music by Chris Thompson.  Produced by Jackie Santos.