Steve and Katie end 2020 with a few updates on past podcast episode topics, including 5Pointz and moral rights litigation, the Painted Bride mosaic mural battle, deaccessioning in Baltimore, and pandemic related litigation. We look forward to many more interesting topics in 2021!
The Painted Bride:
Force majeure ruling:
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: 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. Hi, Steve.
Steve Schindler: Hi, Katie. How are you?
Katie Wilson-Milne: I’m all right. So we’re nearing the end or when our listeners hear this, the end will have occurred of the dramatic and mostly unfortunate year of 2020. But we —
Steve Schindler: Oh, good riddance.
Katie Wilson-Milne: We did have some interesting podcast episodes, and so we thought it would be a great idea to revisit a few of the topics we talked about that were of interest that have had interesting updates since we did those podcasts. And just sort of end the year with those updates on those topics and look forward to a season of 2021 interesting art law topics.
Steve Schindler: Right, and I’m also looking forward to — I’m predicting that sometime in 2021, we’ll be back in our studio at 100 Wall Street and sitting across from each other again, and doing these podcasts the way we’d like to do them. But for now —
Katie Wilson-Milne: Like this year never happened.
Steve Schindler: Right. And now we just — we’ve become the masters of the Zoom podcast or whatever technology is of the moment. But I’ve been thinking a little bit about 5Pointz. I think we’re finally at the end of this seemingly long saga, which ended in October this year.
The United States Supreme Court declined to review the Second Circuit’s decision, which affirmed Judge Block’s award of $6.75 million in damages to a group of artists after their murals at 5Pointz were whitewashed by Gerald Wolkoff. And we’ve had now two episodes on 5Pointz. We had a great episode with Meres One and some of the other participants in the 5Pointz site and then a wrap up after the Second Circuit affirmed Judge Block’s decision, now we have the US Supreme Court declining to weigh in. And in addition to that, Judge Block just recently awarded the artists $2 million in attorney’s fees on top of the $6.75 million in statutory damages that were already awarded. So that makes it a whopping total of $8.75 million in favor of the artists. And I think there are some —
Katie Wilson-Milne: I’m sure that the lawyers we’re thrilled about that.
Steve Schindler: I think the lawyers were thrilled. I’m sure they were wondering if and when they were going to get paid. And now, Judge Block has answered that. I’ve thought a lot about this case and what the likelihood is that it’s going to be repeated at the same scale, certainly, as we saw.
And if we look back to the original decision that Judge Block had to make, I think he was faced with a very difficult situation, which was the artists commenced the case seeking a temporary restraining order and a preliminary injunction preventing the destruction of the murals pending the ultimate outcome in the case. And we talked about that in our first episode. And Judge Block denied the request for a preliminary injunction, he granted a temporary restraining order, and then after declined to issue the preliminary injunction on the fear —
Katie Wilson-Milne: And the background of that was that the developer Gerald Wolkoff, wanted to build fancy new condos in Long Island City, on the site that he owned of this old sort of falling apart factory where all these street artists had been painting on the exterior walls with Gerald Wolkoff’s permission for years and years. And so the issue was, he wanted to tear it down, right?
Steve Schindler: Right, and that’s an important point that you raised, which is that all of the murals were put on to 5Pointz with the permission of the developer. And so when it seemed that the developer was ready to tear down the old factory and build luxury housing, first the artists tried to stop it in other ways. They sought landmark status for 5Pointz. It had become quite a Mecca, and a tourist destination over the years. That was not successful. And then some of the artists tried to raise the money to buy the building from Mr. Wolkoff, and that too was unsuccessful. And then really almost on a fluke, they were talking to their real estate lawyers one day and he suggested that the Visual Artists Rights Act, the moral rights statute that the United States adopted in 1990 as part of the copyright law, provided a potential remedy.
And if you’ll recall the Visual Artists Rights Act provides a remedy to prevent destruction of certain kinds of works of fine art that are of “recognized stature.” And so when the preliminary injunction hearing took place in front of Judge Block, he was considering whether or not these works were of recognized stature, but ultimately concluded that he didn’t have to grant a preliminary injunction, because money damages would be available to compensate the artists if they were successful under their VARA lawsuit.
And then, of course, famously, as soon as he denied the injunction, Mr. Wolkoff, went out with a crew that evening and began to whitewash the entire building, pretty much taking off the table any kind of compromise. And I think this was something that really infuriated Judge Block, and may have been one of the reasons why he awarded the maximum amount of statutory damages that he did. But this question of what is a work of recognized stature is something that is not defined in the statute. And so judges who’ve considered these cases have had to come up with their own definitions. And now that definition is seemingly pretty broad. Both Judge Block and the Second Circuit have decided that a work can be of recognized stature, if it’s perceived by some relevant community or group as being of a high quality or having achieved a certain kind of status. And that is a pretty broad definition.
And in fact, in their petition to the United States Supreme Court, the landlord and the landlord’s company, argued that recognized stature was so vague and so undefined, that the taking of property, namely the damages that were awarded, based upon such an ill-defined statue was a violation of their constitutionally given due process rights under the 14th amendment. Of course, the Supreme Court declined to consider that question. So now we have a very broad definition of recognized stature, which I think we’ll see again. Just one other thing that’s always stuck in my mind, which is this: the statute is very clear, which says that an artist can go into court to prevent the destruction of a work of recognized stature. And it seems to me that Judge Block was incorrect in his interpretation of the law at the time, because the law basically says that if you can prevent the destruction of a work of recognized stature, that must mean that an injunction preventing that destruction is the only feasible and the likely remedy for protecting that, right. It’s not money, that doesn’t help to prevent the destruction of the work.
And it didn’t in this case. But I think the problem is that Judge Block was troubled by something that other judges have been troubled by too, which is this conflict that VARA has set up for site specific works between a person’s property rights, in this case the landlord’s right to develop his own property, and these moral rights, which are really not very embedded in our history and jurisprudence. And so when Judge Block tried to balance these property rights against the moral rights of VARA, he came down as other judges have, on the side of Mr. Wolkoff’s property rights and ultimately tried to balance that by a very substantial award of damages. And we’ll see, I think there will be —
Katie Wilson-Milne: Yeah. And in the end — I was just going to say it’s interesting because the property owner decided to whitewash these works — paintings, street art — that was all over this gigantic warehouse factory, which he did not need to do in the end to protect his rights. He created a stronger VARA claim, I think, in a way because he didn’t give the artists notice, which is required by VARA to come — the opportunity to remove their work, if it was removable.
And that lack of notice, that sort of aggressive, totally unneeded act of whitewashing both enraged the court, which had legal ramifications, because the court had certain discretionary power and was pissed off. But also raised a much clearer, I think, VARA violation. That is what in the end led to that level of damages.
Steve Schindler: Right. I think also one of Judge Block’s findings, which was also affirmed by the Second Circuit, was that the violation of the artists’ VARA rights was willful. And because it was willful, that justified the maximum statutory damages of $150,000 per work. The plaintiffs really didn’t even try to establish a market value for these aerosol murals on the walls, and instead just sought the statutory given damages that you can get under our copyright law. And that does provide for a maximum of $150,000 in the event of a willful infringement, or this case, VARA violation. And that’s what the judge did.
Katie Wilson-Milne: Yeah. So that long, long saga, which we spent some hours on on this podcast, now appears to be over, and we’ll have to wait and see if that case law breathes new life into more VARA claims going forward.
Steve Schindler: So, Katie, why don’t you tell us about the new developments in the Painted Bride case in Philadelphia?
Katie Wilson-Milne: Okay, I have an affection for this case, because I love Philadelphia. And this is just the kind of small, little art law dispute that most people might not hear about, but actually raises all kinds of legal and social issues, so it’s a fun one to talk about. As our listeners may or may not remember, the Painted Bride is a not-for-profit arts center, or art space, focused on art programing and the promotion and support of various forms of artistic practice in the Philadelphia community. It was founded in the late 60s as part of what was called the “alternative space movement.” Very focused on diversifying both artistic practice and the people involved. In the early 80s — maybe 1980 — Painted Bride bought a space in Old City, Philadelphia. Called “the Bride” because it was an old bridal shop — that they purchased for their programing and had a theater in it. And they operated out of that space until very recently. In 1990 — it’s unclear exactly how this came about, but a fairly well-known Philadelphia artist, his name is Isaiah Zagar, came to the Painted Bride and with their agreement or their request, I don’t know, spent the next nine years creating a 7,000 foot mosaic mural wrapped around the structure of the Painted Bride’s building. This is like a magnificent site, very strange and beautiful and certainly unique. Hundreds of 1,000s, probably of these tiny little tiles all over the exterior. And since that time the Bride and Zagar to some extent have maintained that mosaic mural that’s on the exterior of the building. But a few years ago, the Painted Bride had a number of developments. One was their financial situation was not good. They had decreased income from fundraising and donations, their cash flow was challenged, their general financial state was not only poor, but declining. At the same time, this mosaic mural was expensive to keep up and falling apart. So by some reports, up to 50% of the mosaic mural was unstable. The Painted Bride had gotten warnings that tiles were falling off, and that it was a danger to the community. It was partially covered, I believe, in netting so that certain tiles wouldn’t fall off. And all to say it was an extremely expensive and intensive process in an effort to maintain this mural. It was a gift to the Painted Bride, which is a performing arts center and they own the mural.
Now, of course, what ends up happening is that Zagar is upset his mural is in danger. And that comes about because the Painted Bride decides it needs to sell the building. It’s its most valuable asset. They don’t think they can survive without getting some liquidity. And of course, if they sell the building, they sell the mural, because the mural is attached to the building. And it’s just tiles; it can’t be removed in one piece. And they go about a process of governance deliberation, decide to sell it, they get an offer from another nonprofit — a theatre company, I think — for two and a half, $2.6 million, but they get an offer from a private developer for almost $2 million more than that. I believe about $4.5 million, and they decide to go with that deal.
They — I guess because the community and Zagar were upset about the idea that the mural would not be preserved and understood that if the building was sold to this developer it would be torn down — the Bride for some reason, which I’m still not entirely clear of, voluntarily goes to the Orphans’ Court in Philadelphia, which is the court that handles trusts and estates matters. Sort of like our probate courts and all deals with —
Steve Schindler: I love the name, though.
Katie Wilson-Milne: I know. It’s so good.
Steve Schindler: They should rename our probate court the Orphans’ Court.
Katie Wilson-Milne: Right. Go back in time 200 years. Yeah, the Orphans’ Court is now part of the regular court system, but it maintains the name. And the Orphans’ Court, for reasons that are also unclear, takes this case seriously and decides it on moral grounds. But the Painted Bride goes to the Orphans’ Court and says, “Look, we need to sell the building, we’d like your approval.”
I don’t see a legal basis for that other than that, maybe there were some threats made, or they just wanted to settle the matter in the most definitive way possible. The Attorney General of Pennsylvania — which like all Attorney[s] General, oversee the interests of nonprofits in their state — had no problem with the sale. Didn’t file any objection. And nevertheless, the Orphans’ Court kind of sides with Zagar and the people who want to protect the art by saying this is just too important of a work of art. If there wasn’t a work of art, I would absolutely approve this sale. But this work of art will be destroyed, so you haven’t met your burden, the Painted Bride, of proving that this is an acceptable path forward and that you’ve considered all the charitable purposes and that you’re acting in the best interest of the organization and that this is the right way to deal with your problems.
And so the Painted Bride has been left in this incredibly awkward situation of not having had to go to court at all, fully owning the building and the mural, having no money to continue with programing going forward — and in fact, looking at millions of dollars of upkeep, if they have to maintain this mural — and a deal in hand to sell it and get the money they need to survive. But now they’re being told they can’t do it. So just incredibly awkward position with no path forward. Not surprisingly, and wisely, this decision was appealed.
Steve Schindler: Yeah, no. It’s just so interesting to me hearing that after we’ve just discussed 5Pointz, just a bit ironic that the Orphans’ Court, with seemingly not any legal precedent behind them just decided that this work was too important, and enjoined the sale so to preserve the work. Whereas Judge Block had a basis for enjoining the destruction of the work, but chose not to and sided in favor of the owner’s ability to sell the work. They’re not — they’re obviously different laws in play, but interesting how the Orphans’ Court kind of took it into their own hands.
Katie Wilson-Milne: Yeah. And you know, it’s a court of equity — or it was a court of equity. So as we often find, in those types of cases, they can go wildly different ways based on how the court feels about something, because equity leads — has a lot more leeway. But it’s incredibly odd, especially, there was no real consideration of the charitable mission or the Bride’s future.
So this was appealed to the Commonwealth Court of Pennsylvania. And that court, I believe it was a panel said, let’s take a step back, Orphans’ Court. The law here is fairly clear. The Painted Bride needs to use its assets, donations, etc. to further its charitable purpose. So let’s look at what that charitable purpose really is. And where do we look for that? We look for it in the articles of incorporation, where you set forth what your charitable purpose is. And that charitable purpose states that the Bride is organized exclusively for purposes of furtherance of the arts and promotion of cultural endeavors, among its members and more particularly in the community, by promoting and participating in painting, sculpture, drama, music, dance, and poetry. And so the mission, and the charitable purpose is very clearly just promoting arts programming, right? And it does not say anywhere that the charitable purpose is preserving a single work of art. And in fact, wouldn’t it be perverse if an imposed duty to preserve a single work of art created long after the bride had been operating, would in fact, undercut the ability of the Bride to fulfill its charitable purposes at all? And so the court, I think, very clearly distills this and says however much people may like this mural — and we’re not commenting on how valuable it is or how beautiful it is, or unique, whatever — the Bride is allowed to do what it wants with its own property, as long as it’s in furtherance of its charitable mission, and that’s the question we ask ourselves. There’s also some discussion in the opinion about certain laws that also exist in many states, about approvals, nonprofits need if they dispose of all, or substantially all, of their assets. The court doesn’t really apply those laws here, because the case doesn’t call for it. They weren’t actually disposing of all their assets. They are going to keep the money and use it for their charitable purposes. So really the only issue here is, are they disposing of property not in furtherance of the charitable mission? And the court says they clearly are. They need this money to continue their arts programming, which is the purpose of their existence, and it would be an unreasonable restraint of trade to force them to maintain this mural and stay in their old building at the cost of millions of dollars, potentially per year or every couple years, and make it impossible for them to fulfill their charitable mission.
So that decision was reversed. And I don’t know where the deal stands now, if the developer is still willing to buy it after this whole saga, I hope they are. They probably are. But obviously, there’s been a loss of momentum there. But now the Bride is allowed to sell it. The court also said, the artist isn’t involved here, right? He didn’t have a contract with them. He didn’t retain any rights in the mural. He doesn’t like that it’s being destroyed, but that’s really neither here nor there about whether the nonprofit entity can do what it wants with its own property. And so I think —
Steve Schindler: Right. I wonder what would have happened if — whether this artist had a VARA claim that he could have asserted in federal court?
Katie Wilson-Milne: Yeah. So that’s a good point, because again, this case has nothing to do with the Visual Artists Rights Act or moral rights. This is about what a charitable entity can do in its own powers, according to the charitable corporation law in Pennsylvania and basic fiduciary duty obligations. And so that’s what this was decided under.
At some point, Zagar had threatened to bring a VARA claim, if this didn’t work out. And so maybe he still will. And that’ll look in many ways a lot like 5Pointz, because it’s this work of art that can’t really be removed from a building that the owner wants to sell, or develop. And —
Steve Schindler: Right, right.
Katie Wilson-Milne: I’m skeptical of the — of his ability to prevent a sale based on VARA given the circumstances and the fact that it is really tied to this building. But he did create it through the 1990s when VARA was in effect, and I think it would be a cognizable claim, even if not an ultimately meritorious one.
Steve Schindler: And this maybe leads us into our next development, which is the whole deaccessioning debate that was prompted by the AAMD statement that we spoke previously about and some of the deaccessioning activities. But I guess it’s fair to say that Painted Bride is not a museum, correct? And if it were a fine art museum, it might at least ethically, be facing different challenges. But because it’s not, because its mission isn’t defined by the art, it doesn’t fall into that category.
Katie Wilson-Milne: But they don’t collect anything. And they’re — in fact, I think they have very little to do with fine art. It sounds like they do a lot of programing and performance, or facilitate programing and performance. So yes, that’s absolutely right. I mean, they were given this incredible mural, and then the giver, the artist, kind of made it into a curse. You know, that they didn’t need it. This wasn’t part of what they do, and yet it served to potentially restrict their original mission going forward. So that’s a really interesting case. There’s definitely no argument that this work was somehow tied up in the identity or purpose of the Painted Bride, but not so for art museums, as we know. Both ethically and by museums’ own policies, by practice and expectation of donors, and in New York state, in some circumstances by the law, which prohibits or strictly limits deaccessioning under certain circumstances.
Steve Schindler: So tell us a little bit about that. What are some developments in that area?
Katie Wilson-Milne: So I’m going to give an update on the Baltimore museum case — situation, because I think that’s the most interesting, and it’s been the most dramatic development since we talked about it. But as our listeners may recall, earlier this year, the Association of Art Museum Directors, the AAMD, which is sort of the premier governing membership organization for art museums in the United States, and has very strict — the most strict deaccessioning guidelines out there — came out with a strange, lawyerly press release, saying that they weren’t changing any of their prohibitions on deaccessioning. Which, just to remind our listeners, are that you can’t sell works of art for any purpose, other than to buy new works of art. So that money could never be used for operations, never could be used for anything else around the collections, only to buy additional works of art under certain circumstances.
So, it presents a problem if the museums want to sell art to make money for other reasons, or just to stay open. But in April, the AAMD came out with a statement saying they would not punish their members for two years — so through April 2022 — if their members did certain things, some of them included use of restricted funds for operating expenses. But the main one that we’ve talked about on the podcast and that ties in with many of our discussions about deaccessioning, is that the AAMD said you can use proceeds from the sale of art to fund care of collections.
And care of collections in the New York statute, it’s used in other ethical guidelines, it’s not defined really anywhere. But that was what the AAMD allowed. They said, you can now use these funds not just to buy work, but to support the direct care of the museum’s collection. So certain museums responded to this, which we’ve talked about — the Brooklyn Museum, many smaller museums. And of course, museums have been dealing with deaccessioning in the past. We’ve talked about that before. Some museums just decide to do it, it’s not usually illegal. And they’re free to do it, they just face sanction by the AAMD and sort of public outrage. So the AAMD sort of opens up this possibility, not by changing what it’s allowing, but by saying we just won’t punish you for it. Some museums start to take advantage of this by putting together sales of certain works of art, notably the Brooklyn Museum and as we talked about, the Baltimore Museum.
Now Brooklyn has not faced much blowback from its decision, I think, for a few reasons. One, they seem to have been quite careful about what works they were selecting, so works that were duplicative or not that important in the scheme of the museum’s collection, even though they were very important works, including some old masters and impressionists. They also were very careful about how the funds from those sales were going to be used. Not just, “we’re going to fund salaries,” but we’re going to fund a portion of a salary that directly relates to actually caring for the art. So it was fairly precise. And the Brooklyn Museum is well-known to have severe financial problems. I mean, they don’t have the fundraising strength that the Met or MoMA have. There are a major institution, but they do have financial difficulties and that was part of the decision. Baltimore, on the other hand, is not in financially difficult circumstances, admittedly. They have plenty of money, they’re not worried about laying people off or ceasing certain programming. Their real purpose, and they’ve been talking about this since at least 2018 is to diversify the collection and to focus on diversity and inclusion more generally in the operations of the museum.
Baltimore decided to sell $65 million worth of art, to do a few things. The museum was going to put a substantial amount of that 65 million in projected proceeds towards a fund that would kick off income that would contribute to the direct care of collections, including raising the salaries of several dozen staff members and additional money to purchase works by women and non-white artists to enter the collection. And then about a half a million dollars towards diversity, equity, and inclusion, planning more generally. And about the same amount of money towards making admissions free for special exhibitions. So we have a really wide variety of purposes that this money is going to be used for and I think it just rubbed people the wrong way that Baltimore was trying to shoehorn this effort which has a lot of purposes, some buying new art diversifying the collection, but also clearly not causes related to the art itself. Generally raising salaries. Doing a general plan for diversity, equity, and inclusion, and then making admission more accessible by making admission free for special exhibitions, which is very — I think, hard to call care of collections — did not fall into the AAMD’s narrow exception for use of operating expenses at all. So Baltimore, despite getting some kind of approval from the director of AAMD at the time, they go ahead and do this, but they have huge blowback.
They have blowback by former board members who write letters, who go to the Maryland Attorney General and complain about this sale. There are accusations of conflicts of interest with the artists on the board, who are artists that the museum is also collecting right now. And the AAMD is watching all of this and starts to feel, because of all this blowback in the art world about these potential sales, starts to feel like maybe its guidance is being misinterpreted. So the AAMD board president, not the director, writes what was supposed to be a private letter memo to its members, but we now have access to in October actually only a few days I believe before these works — or two of the works were going to be sold at auction at Sotheby’s. A third was going to be sold through private sale. And he writes this letter not mentioning Baltimore but saying, we did not change our rules.
In light of the financial extremists of the moment, we would not punish museums for a little bit broader use of funds from the sale of works so that they could stay open, basically. It was never envisioned that these rules should incentivize deaccessioning that wouldn’t have happened before. These rules do not allow the use of funds from deaccessioning to be used for broader long term goals of an institution, no matter how noble they are.
Clearly, I think, speaking about these diversity, equity, and inclusion efforts that a lot of museums want to find funds for, and they look to their greatest asset, which is their art to do so. Now, that letter came after other things at Baltimore — so in addition to former board members complaining, writing letters to the museum and to the Maryland Attorney General, there were certain very large promised gifts that were put in jeopardy or revoked, because donors wanted to send a message to the museum that if their art was just going to be sold, they were not going to be giving it to the museum. And so a few days after the AAMD letter came out, Baltimore decided not to sell the works, and pulled the two works that were going out for public auction at Sotheby’s, which was a Clyfford Still, of some value. And a piece by Brice Marden, who, by the way, is still alive. It’s quite unusual to sell — for a museum to sell work by a living artist. But those two works were pulled from auction right before the auction. The third work was a 25 and a half foot Warhol piece that was a major museum acquisition not even that long ago, and that was going to be sold through private sale at Sotheby’s. So right now, that plan is on pause. I think, watching what happened with Baltimore, and how much they were stretching the use of funds from deaccessioning to do a bunch of things at the museum — value-based, mission-based, long term identity shifting projects — and the reaction from the traditional art community and from the AAMD saying, absolutely not. That we cannot start selling art to fund these kind of efforts, no matter how important we think they are. So I think this will certainly affect how museums think about deaccessioning for purposes other than buying art, and we’ll see what Baltimore does in the future.
Steve Schindler: Yeah. It’s funny, it seems like the floodgates were open and all of a sudden, museums sort of jumped in and said, “Okay. Now we can use this opportunity to sell some art.” And now obviously, we see them closing a little bit more. And maybe museums will have to be a little bit more judicious in the way that they approach these things.
I do think it does set up this interesting tension between the advocacy of these important goals and the funding of those goals. And I guess the folks who are really opposed to deaccessioning for anything other than direct care, or acquisitions of other works, look at this and say, you just need to find the money somewhere else. And I think because Baltimore didn’t have the same financial problems as other institutions it was somewhat hard to look at it as acting in extremis, particularly in these times when funds need to be raised by nonprofits to protect people’s jobs. And I think the lesson here from AAMD, and others in that camp is these are all important things, but you can find the money somewhere else.
Katie Wilson-Milne: Yeah, I agree. And for some reason, I do have less sympathy for Baltimore here. I mean, part of it is these works were actually not sort of side-show works, they were significant key pieces of the collection that didn’t have duplicates in some respects. And so there was just artistic opposition, because these were important works in the collection, albeit three that would net a lot of money and quickly. So I think there was some suspicion that it was sloppy from a curatorial perspective to get rid of these works. And also Baltimore says, totally understandably, we need to start living up to our values and paying people a real living wage and we’ve had a lot of complaints that we’re not doing that. And so we want to raise salaries, and how are we going to do that? We’re going to sell our art. But that feels uncomfortable for people, right?
Like, if you’re raising tons of money every year for special exhibits, and events, maybe you should just put some of that money towards salaries, right? It’s just that it felt weird for people that the solution to not paying people enough isn’t just to redo your budget and spend less than other things when you have plenty of money, but is to sell key pieces from the collection. And if that’s the strategy for this and for hiring a consultant to do diversity, equity, and inclusion plan, why wouldn’t we keep selling art to fund anything that we think is important? The standard can’t be, you get to sell art if it’s important, because there are lots of things that are important for a museum in terms of its programing and meeting the moment that we’re in now.
So I mean, it’s an interesting case. I do have a lot of sympathy for especially these smaller art museums that lived in areas, often in an industrial age where there was lots of money, more philanthropy, and whose funding sources have largely disappeared, right? But they’re stuck with these sort of before times art collections of substantial value and really no fundraising to take care of the art, to pay the bills, to pay salaries. And at some point, something’s got to give, right? More wealthy people need to step up and just give them cash for operations or we’re going to need to get less angry if they need to sell a piece of work. Or take the position that if you can’t fundraise to stay open, you should shut down and your art should be given to another museum. But those are the three options, and I think, this absolutist approach to no matter what size museum you are, no matter what the reality of your board, or your funders, in no circumstance, is it ever appropriate to sell any work of art. No matter how unimportant. No matter if it’s never been shown to the public, because it’s been in storage or in the basement for 20 years. That’s hard. It’s hard right now, I think, to hear those kind of arguments and have them make as much sense.
Steve Schindler: Yeah, no. I agree with you. I mean, these are nuanced decisions, and to try to have some — one cookie cutter formula for all of them seems headed for disaster in a certain way.
Katie Wilson-Milne: Yeah, so we’ll see. The AAMD will either render itself irrelevant, or people will take notice that the standard is still strict.
Steve Schindler: I think we can’t really end this here without talking about the pandemic. And the really disastrous impact that that has had on the art world. And we talked in a prior episode about the impact on nonprofits and museums. But equally, it has had a profound impact on the way art galleries do business, and I think will continue to have that. And we thought it would be helpful at the end of the year to talk a little bit about some of the litigation and legal issues around the pandemic. And particularly a very recent decision by Judge Denise Cote in the Southern District involving a guarantee. So over the course of this pandemic, beginning back in March, we’ve seen a number of just general changes in the way art market participants are trying to cope with the reality of shutdowns and the inability to perform in a timely way. Katie and I, we had a client that was involved in a transaction, which required a work of art to be shipped to that client in connection with the payment of that work of art. And it turned out it was right at the very height of the beginning of the pandemic and the shutdowns, and it was impossible to receive the work. And so we had to figure out a way to deal with that.
And these kinds of contractual problems relating to cancellations of events and delayed performance are things that we’ve worked on really since March. In terms of legal concepts, one of the things that is being litigated now and going to be decided is the definition of something called a force majeure clause, which are in many, many kinds of contracts. And force majeure is basically a concept which says that the parties should be able to get out of their contractual agreements if something occurs that is way beyond what the parties ever anticipated, making it difficult or sometimes impossible to perform in the way that the parties contemplated. And force majeure is usually considered things like war, for example, is one of them. An act of God, sort of broadly defined. In New York at least, courts have traditionally interpreted these clauses fairly narrowly, and not allowed contract participants to get out of their obligations by asserting force majeure. But obviously, we are in the middle of a worldwide pandemic, and it begs the question as to whether or not a force majeure clause applies to this situation.
And we have a recent case decided by Judge Cote in the Southern District. It was a case brought by an entity called JN Contemporary Art LLC, which is actually a limited liability company owned by Joseph Nahmad, against Phillips Auctioneers. Essentially, Mr. Nahmad’s company had consigned a work by the artist Rudolf Stingel and Phillips had, as is common nowadays, offered to give a guarantee, guaranteed price, for the work.
Now the work was supposed to be sold at the Phillips May 2020 Contemporary Evening Auction, which was ultimately postponed as a result of the pandemic. And then what happened was Phillips, probably for a variety of reasons, but seizing on the postponement of the auction, terminated the guarantee, and said, “We are no longer obligated under the guarantee terms, because there’s a force majeure clause in the guarantee which basically defines force majeure among other things as ‘natural disaster.’
And said, “Therefore, because we’re in the middle of a pandemic, which is a natural disaster, we no longer have to perform our obligations to give you a minimum price on the work.” A lawsuit was commenced against Phillips, and just recently, Judge Cote dismissed the lawsuit, finding that indeed, this global COVID pandemic was squarely within the meaning of the force majeure clause in the guarantee agreement. And in a very elemental way, Judge Cote read the force majeure clause very broadly, but looked to dictionary definitions. The meaning of the words natural disaster, which were found in this particular force majeure clause. She looked at Black’s legal dictionary and said, well, natural is something that’s brought about by nature as opposed to artificial means. And the last disaster is calamity or catastrophic emergency. And based on those definitions, found that force majeure applied here, and therefore allowed Phillips to extricate itself from this agreement. Now, it’s very likely that this decision will be appealed to the Second Circuit. But it is a very important precedent, at least in my view, that will probably be looked at and cited by other courts interpreting other agreements.
Katie Wilson-Milne: Right. I think this is such an interesting case, because both in sort of the regular contract context and in the art insurance context, parties are wondering, the whole world just blew up. I can’t open my gallery. I can’t make as many deals. Isn’t this exactly what business interruption insurance is for? To deal with something like this? Shouldn’t I be compensated? And yet the insurance industry has largely succeeded in saying, “Nope, this is absolutely not. Pandemics — not covered by business interruption. This is not damage to your physical property. It is not a government decree to shut down.” Which of course, it is in many places. They’re getting out of it at the same time courts, like Judge Cote, are finding that in private contracts where there’s a force majeure clause, which may not even mention pandemics or disease — which by the way, lawyers who are drafting these now are starting to include specific references to viruses and pandemics so that these kind of disputes can be avoided. But this didn’t have that language. And she still said, “It’s clearly covered. Of course, this is a disaster. Of course, this is the kind of thing that force majeure is supposed to cover.” So those are a little bit in conflict.
Steve Schindler: They are and I think the business interruption cases are also interesting. There are some that are proceeding in the UK, in the art world in particular. And there are many business interruption cases being brought here. Business interruption clauses, which are provisions in one’s property insurance, that covers usually a business in the case of a business interruption, or has its own jurisprudence and precedents that are very peculiar, but one of the things that we find in many of the business interruption exclusions is an exclusion for an event caused by a virus. So the people drafting those provisions were — gave it some thought and excluded it from the contract, so it’s a little bit different in that sense.
And of course, from the point of view of the business of the insurance community, any kind of precedent that would allow businesses impacted by this pandemic to collect on business interruption policies would be a very, very significant event for the insurance industry, which would I think be seriously threatened. There are other sort of random litigations. There’s a gallery in New York that brought a lawsuit against its landlord to terminate its lease, citing impossibility of performance or frustration of purpose. Which are two contract defenses, essentially saying that I have a gallery, one of the things that I do in a gallery is to have shows which hundreds of people attend. And I can no longer do that anymore and therefore, the purpose of my lease has been frustrated, and I’m entitled to terminate it.
I think that’s a harder argument in many ways, but it is a case that is making its way through the courts in New York State at this point. I think a lot of galleries have continued to operate, maybe not in the same way that they did before, but certainly switching to online platforms has allowed them to operate. And some of them are selling very expensive works of art. So we’ll have to watch some of these things, but I do think the force majeure in some ways is the most important to watch for at this moment.
Katie Wilson-Milne: Yeah, may it never be an issue again, but just in case, the case law will develop.
Steve Schindler: Let us all hope for that in 2021. And that’s it for today’s podcast. Please subscribe to us wherever you get your podcasts and send us feedback at email@example.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: 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. You 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.