15 Minutes on Mediation of Arts related Disputes

Posted on November 18, 2014November 19, 2015 by Judith Prowda

I’m [linkedinbadge URL=”www.linkedin.com/in/judithprowda” connections=”on” mode=”icon” liname=”Judith B. Prowda”]. The topic of my presentation is Mediating Arts Related Disputes. Mediation is a creative and powerful dispute resolution process that has become increasingly common in the arts context. This is not surprising, in light of the unique characteristics of mediation. It is the only resolution process whereby the parties remain in control, not only of the outcome but the way in which the outcome is obtained.

Mediation Distinguished

Let’s begin by distinguishing mediation from other forms of dispute resolution.

What is Mediation and How Does It Compare with Arbitration?

Mediation is a private, confidential, informal and non-binding alternative dispute resolution process whereby a neutral third-party assists the parties in resolving their dispute.

Arbitration is similar to mediation in that it is also a private, confidential alternative dispute resolution process. In addition to being more formal than mediation, there is another key difference. In arbitration, a third party neutral (either a sole arbitrator or panel of 3 arbitrators) decides the outcome of the dispute. Arbitral awards are final, that is, non-appealable, and rarely subject to judicial review, unless there has been fraud or other defect in the arbitral process. Compared to mediation, arbitration is often lengthier, more formal, more adversarial, more demanding of the neutral party in terms of time and labor, and therefore more expensive.

How is Mediation Different from Litigation?

Litigation

Litigation is generally something people try to avoid. Not only is litigation expensive, time consuming and emotionally draining, it can destroy long-standing relationships between disputing parties, if not the business itself, as it plays out in public. The court’s decision is public, as well as the pleadings and testimony. As a result, litigation can have a devastating effect on the reputation of the parties. Moreover, the outcome of litigation is unpredictable, since the decision is in the hands of a judge or jury. Courts adjudicate largely in black and white, and are limited in their ability to find creative remedies. One party will generally win and one will lose.

Mediation

How does mediation compare with litigation?The distinctive characteristics of mediation are also its advantages. I will go through several advantages of mediation and discuss how mediation can help parties resolve their dispute.

Control over the Mediation Process

As I mentioned, a unique feature of mediation is that it permits the parties to remain in control. To begin, the parties can select their mediator based on expertise and style and decide what approach makes sense. The parties also determine whether the mediation will be conducted in joint session with all the parties and representatives present, or include private confidential meetings – caucuses – with each side separately.

Mediation is voluntary. Even though participation in mediation may sometimes be court-mandated, the parties are not obliged to agree to anything, and there are no penalties for failing to resolve their dispute. Just as parties can initiate mediation at any stage of the litigation, they can also suspend it at any time and proceed to trial.

At the least, the mediation will have provided an opportunity to narrow the issues and identify the interests at stake.

A mediator can be very effective in simplifying and organizing the case so that it can proceed more efficiently even if it is not resolved during the mediation. As a neutral third party with no stake in the outcome, the mediator can be an effective “agent of reality” by helping the parties to weigh the uncertainty and risks of not settling.

Creative and Durable Solutions

Mediation can foster creative solutions because the parties can take into account real business interests, including non-monetary considerations, and identify impasses to reaching a settlement. Rather than focusing on past conduct, the parties may be motivated to explore new options for mutual gain and search for ways to settle a dispute in which their real interests are not mutually exclusive or truly adverse. By shifting the focus of the discussion away from the “position” or “side” each party has adopted, and instead looking to their needs and objectives, the parties may be able to find “win-win” resolutions.

Moreover, a settlement achieved through mediation may lessen the likelihood of another dispute arising between the parties, while creating a process for them to work through future problems should they arise.

Cost and Time Effectiveness

Mediation is far less expensive than litigation. Often a dispute can be resolved in a single session. By resolving the dispute early in the litigation, or even before a lawsuit has been filed, the parties can save exorbitant sums in court costs, attorneys’ fees, discovery, and other related expenses.

Less Stressful and Emotionally Burdensome

Mediation is far less stressful and emotionally burdensome than a trial, which involves publicly reliving an upsetting experience or exposing a negative business decision that gave rise to the dispute in the first place. Resolution of the dispute through mediation, especially at an early stage of the litigation, allows parties to return to their business and personal lives and avoid the disruption of a protracted litigation.

Confidentiality

Turning now to the confidential nature of mediation. Whereas litigation is public, mediation is confidential. Parties to a mediation may therefore be open and candid about their concerns and positions in a closed, safe environment. Any statements, proposals, or offers made by the parties are not admissible as evidence in any subsequent arbitral, judicial or other proceeding. There is no public record of what was discussed during mediation sessions. All records, reports or documents received by the mediator while serving in that capacity, as well as the mediator’s notes, are confidential. Confidentiality rules also apply to any other persons attending the mediation.

Because of the confidentiality rules in mediation, some of the adverse side effects of litigation are diminished, such as damage to the parties’ reputation due to media coverage, as well as the time and stress involved in witness preparation, testifying in open court, depositions, and other disruptions. These considerations are often critical in art-related matters. The mediation process provides ample protection from having to reveal confidential information to the other side simply by advising the mediator during the separate caucus. Confidential information may include a party’s honest assessment of the strengths and weaknesses of its own case as well as the party’s final settlement position. The mediator may not repeat a confidential statement to the other side without authorization by the party affected.

Privacy and Opportunity to Listen and Be Heard in a Closed Setting

Since mediation sessions are private, no one other than the parties and their representatives is permitted to attend. The parties are therefore free to express their anger and hurt feelings directly to one another or simply to vent. They may benefit from hearing the other side’s version of the story, perhaps for the first time face to face, and may be able to identify areas of agreement and disagreement quickly.

The value in having one party listen and respond to the other party’s concerns, or to receive an expression of regret, remorse, or appreciation cannot be overstated. These interests are no less real because they are not strictly monetary or economic. Parties often feel a sense of catharsis after expressing themselves in the presence of a neutral third party—similar to having their “day in court”—and are more willing to resolve their differences, clear up misunderstandings, and search for common ground.

Preservation of Relationships

Mediation is especially suitable in situations where the disputing parties have had a long-term personal relationship, or an ongoing business relationship. Close collaborations are prevalent in the art world – for example, between an artist and dealer. If the parties are able to resolve their dispute through mediation, there is real potential that they can preserve their relationship rather than destroy it through litigation. Potential settlement terms may include a joint press release, a non-disparagement agreement, a confidentiality agreement, or a contract for future business.

Pre-Mediation Contract

If the parties decide they would like to mediate a dispute, they should enter into pre-mediation contract. This simple contract should include the following provisions.

The mediation should be confidential and non-binding.
The parties should agree on who will conduct the mediation and how the mediator will be paid. The mediator’s fee is typically split between the parties.
The parties should agree on the length of the mediation. Most mediations are scheduled for either a half-day or a full day.
The parties should agree to mediate in good faith until either party reasonably determines that it is fruitless to continue. At that point, they can decide whether to suspend mediation and resume at a later date. Alternatively, they may decide to proceed in court or before an arbitrator or panel of arbitrators.

Mediation may not be appropriate in some cases

Despite the considerable advantages of mediation, it may not be appropriate in some cases. For example, in situations where the parties may wish to establish or follow case precedent, or enforce a judgment against a third party, they will need to go to court. Due to the private and confidential nature of mediation, there would be no public vindication (unless parties agree to publicize). While some mediators may be more evaluative than others, the role of a mediator is not to offer an opinion but rather to facilitate the negotiation. Mediation would not be appropriate in cases involving deliberate bad faith, counterfeiting or piracy.

How does mediation work in practice?

Scenario of an Artist-Gallery Dispute

Let’s consider a hypothetical scenario of an artist-gallery dispute.

Hypothetical Contract Terms

Assume that Artist and Gallery A sign a written consignment agreement with the following terms.

Gallery A will have exclusive agency, that is, serve as Artist’s only dealer, for a period of 2 years. They will split the sales proceeds 50/50.
Once Gallery A has been paid for the sale of a work, it will remit 50% of the sales proceeds to Artist on a quarterly basis.
Gallery A agrees to exhibit Artist in 2 group shows the first year and 2 group shows and 1 solo show the second year.
Artist agrees to produce 15 new works of art the first year and 20 the second year.

First Year

During the first year, things are going smoothly. Artist’s works are selling well. The press is favorable. Collectors are interested. Gallery A is prompt about sending 50% of the sales proceeds to Artist quarterly, as required under their agreement.

Second Year

During the second year, however, Gallery A periodically gives advances to Artist totaling $50,000 and uses Artist’s 50% share of the proceeds generated by the sales of his work to repay itself for the advances. Artist abruptly terminates his representation by Gallery A, with $30,000 of the advance payments still outstanding, and decides to work with Gallery B instead. Artist seeks recovery of several paintings delivered to Gallery A on consignment, but Gallery A refuses to return them, asserting a security interest in the works against Artist’s debts. Moreover, 1 of the paintings is missing. Artist sues Gallery A for recovery of the paintings and the fair market value of the missing painting.

Gallery A counterclaims for breach of contract, claiming that Artist violated the terms of their exclusive agreement by entering into a consignment with Gallery B.

Comparing Approaches

Litigation

If the case were litigated, the court would look at New York’s Arts and Cultural Affairs Law as well as common law claims, such as breach of fiduciary duty, breach of contract, negligence and fraud. Significant time would be devoted to analyzing the facts and applicable causes of action and commencing a public adversarial proceeding. There would be discovery, itself a very time consuming process, before the court could schedule a hearing or trial. The more valuable the artwork, the more likely the attorneys would require depositions on both sides, as well as testimony from experts, and all the while legal fees would continue to spiral.

As the case proceeded, the public and adversarial nature of the dispute would distract and consume the time of both Artist and Gallery A and tarnish the reputation of the individuals and business involved. Meanwhile, as the controversy wended its way through the legal system (which could take months or even years), Gallery A’s clients might decide to take their affairs elsewhere, bills could go unpaid and employee morale would decline. Artist would also be upset and preoccupied with the uncertainty of litigation. Possibly his relationship with his new gallery would suffer.

Based on these facts, Gallery A would likely be required to return the paintings pursuant to New York’s Arts and Cultural Affairs law and then file a separate lawsuit against Artist to recover the monies owed. There is the missing painting claim to decide as well. As is often the case, neither side would be satisfied with the outcome. An appeal would always be a possibility, causing another round of strain and uncertainty.

Meditation

If this dispute were mediated prior to filing a lawsuit, there would be no public record. The parties would stay focused on their real interests and bring a resolution at a fraction of the cost. The confidential nature of the mediation process would shield the parties from public and media exposure, reputation damage, and disruption of business that necessarily result from the demands and stress of litigation. Gallery A could avoid the embarrassment of losing Artist to another gallery and for losing a painting consigned to it. Artist could avoid the public’s awareness of his finances and breach of an exclusive agreement with Gallery A.

A mediator who is a good facilitator would encourage the parties to consider creative solutions and to generate settlement options. For example, Gallery A might return a painting of equivalent value that it had purchased from Artist. Perhaps Gallery A could share commissions with Gallery B for works purchased by Gallery A’s clients.

Conclusion

Properly conducted, mediation allows parties the opportunity to resolve their dispute quietly and efficiently in terms of time and expense, while taking into account their individual interests and circumstances. Creative solutions, such as the hypothetical agreement between Artist and Gallery A, would simply not be possible in court. Mediation is particularly relevant in the art world context where relationships are complex and discretion is highly prized.

Thank you for your attention.

The Rise of NYC Art Fairs – NYSBA Event – Part 2

Posted on October 10, 2014November 19, 2015 by admin

Are brick and mortar art galleries the loss leaders in an art world, potentially spiraling beyond viable limits? More than ninety art fairs now define the rhythm of globalized art business. This development has profoundly altered the relationships amongst artists, gallerists, and collectors.

This panel discussion explores and critiques the impacts and challenges – legal, ethical and business – of the rise of art fairs. This is part of an initiative to create dialogue amongst lawyers, artists and emerging and established art professionals working in the primary or secondary markets.

Moderator: [linkedinbadge linkedinbadge URL=”www.linkedin.com/in/judithprowda” connections=”on” mode=”icon” liname=”Judith B. Prowda”], Chair, Committee on Fine Arts, New York State Bar Association, Entertainment, Arts and Sports Law (EASL) Section, Attorney and Faculty at Sotheby’s Institute of Art

Panel:
[linkedinbadge linkedinbadge URL=”https://www.linkedin.com/pub/edward-winkleman/23/726/a47″ connections=”on” mode=”icon” liname=”Edward Winkleman”], Gallerist
Elizabeth Dee, Gallerist
[linkedinbadge linkedinbadge URL=”www.linkedin.com/in/richardlehun” connections=”on” mode=”icon” liname=”Richard M. Lehun”], Attorney at Stropheus Art Law
[linkedinbadge linkedinbadge URL=”www.linkedin.com/pub/nicholas-o-donnell/4/4b2/4b7″ connections=”on” mode=”icon” liname=”Nicholas O’Donnell”], Litigation Partner at Sullivan & Worcester LLP

Here in Part 2, an audio/video recording of Richard Lehun’s PowerPoint presentation can be found in the section on his presentation below. A dedicated audio recording of Nicholas O’Donnell’s comments also precedes his text.

Judith B. Prowda, Moderator:

In Part 1 we began with Gallerists Ed Winkleman and Elisabeth Dee. Ed offered an overview of the research on art fairs he is conducting, in preparation for his upcoming book, Selling Contemporary Art: How to Navigate the Evolving Market. Elizabeth reported on the chances and risks that art fairs impose from her perspective as a dealer and a founder of an art fair.

Here in Part 2 our speakers are attorneys Richard Lehun and Nicholas O’Donnell.

Richard M. Lehun is a founding member of Stropheus Art Law, New York’s pioneers in the provision of unbundled legal and business services to artists, gallerists, collectors and museums. Richard is one of the few to have completed a doctorate in fiduciary law, cross-appointed between McGill and Harvard Law School. He is responsible for gallery, museum and auction house ethics and fiduciary duties at Stropheus Art Law. He’ll be looking at the ethical problems that fairs raise.

Nicholas O’Donnell is a litigation lawyer at Sullivan & Worcester LLP and the practice group leader of the firm’s art and museum group. He has spoken frequently on the topic of WWII restitution litigation, including at a conference in Heidelberg last January about the Cornelius Gurlitt affair. Nick’s widely read Art Law Report offers commentary on legal issues affecting visual artists – the visual arts community. Nick will present on legal issues that art fairs carry with them.

I’m grateful for my employer, Sotheby’s Institute of Art, for graciously hosting this event, as so many New York State Bar Association, Entertainment, Arts and Sports Law (EASL) Section events, in this beautiful space which is my second home. This program is part of an initiative of EASL’s Fine Arts Committee to create dialogue amongst lawyers, artists, and emerging and established art professionals working in the primary and secondary market. Two years ago we pioneered a program on legal issues for artists and galleries during Bushwick Open Studios Weekend, geared to the primary art community. Last October we held a program on Gallery Ethics and have posted an audio podcast and transcript of that program on the Stropheus Art Law website, and we will do the same for tonight’s program.

Richard M. Lehun:

To situate our discussion let me quote Michaela Neumeister de Pury: “Whenever I hear about a new art fair starting, it is almost physically painful for me. The art world is becoming a Gypsy circus.” And Jerry Saltz, who I’m sure many of you know, categorizes the situation like this: “The downside, the beloved linchpin of my viewing life is playing a diminished role in the life of art. And I fear that my knowledge of art, and along with it, the self-knowledge that comes from looking at art, is shrinking.”

We’re in a situation where there are significant contradictions. By looking at ethics in my presentation, I’m going to be looking at contradictions. And what is an ethical problem? An ethical problem is when you have to make a choice between outcomes. Both outcomes contain good and bad, and you’re in a situation where you have to resource that decision, and you have to carry with your stakeholders the consequences of those decisions. This is an area that I spend a great deal of time with in my practice; trying to figure out what burdens on decision-making mean when there is no clear answer.

Art fairs are unavoidable, and they are a contradictory phenomenon, and contradictions increase complexity. The main problem is, the more complex things become, the fewer people can typically do something, or do it well. Those who can master the complexities profit immensely. Those who can’t, as our past panelists have repeatedly underscored, may be threatened with extinction. With the rise in the complexity comes an increased risk of failure, and not only of a financial dimension. The art context is a web of relationships. Those relationships have always been difficult, fraught with idiosyncrasy, failure, and injustice. I don’t think that the art fairs themselves bring an entirely new dimension of dysfunctionality. What they do is bring a different dynamic of dysfunctionality that people may or may not be adequately prepared for. So how do the art fairs affect these relationships? That’s what I’m going to try to cover in very few minutes.

I’m an attorney and my special interest is conflicts of interest. I want to know how we can best deal with these types of situations. I’m concerned about how stakeholders – this means artists, gallerists, collectors and museums – succeed or fail when confronted with contradictory needs and conflicted obligations.

Let’s look at some of these contradictions that affect specific groups.

We have the contradiction, that on the one hand, collectors and visitors value accessibility. This means they get to see a lot, and you get to see it in one place, and it’s very efficient. We know that collectors and advisors are time-poor. They want to consolidate research, search, and purchase. As Don Thompson wrote in The $12 Million Stuffed Shark, comparison shopping at fairs is easy. A single dealer might with difficulty get three Gerhard Richters to show a client. Dealers at Art Basel can show twelve of these at the same time. There is the impact of the herding element; that the sheer number of people and the sold stickers alleviate collector uncertainty.

Fairs are playing to the experience economy. People don’t just want to go one place and have one kind of limited aesthetic experience; they want to interact with a globalized jet-setting world where they experience something. Fairs replace quiet sessions in the gallery with a shopping mall, blending art, fashion, parties in one place. Collectors buy impulsively. They may never visit the gallery of the dealer from whom they buy at the art fair. With each fair, collectors become more accustomed to purchasing art in a shopping mall.

Okay, so that’s good for the collectors somehow, one thinks. Previously, collectors had to consider the interests of the gallery to gain access to works, and indirectly or directly, the interests of the artist, because they had to go through the gallerist, and behind the gallerist one assumes, in most cases that there was an an artist. Collectors are now rendered significantly less conflicted by art fairs. They have simpler choices. If we want to analyze what’s going on at that level, it’s not just the efficiency, it’s also something beyond that. Ethical choices of collectors are diminished by art fairs. Their lives and relationships are simplified. They can spend more money easily. This decrease in transaction costs seems like a benefit, but it also means that their virtual, idealistic investment is discounted. There is significantly less incentive to invest in the dealer and the artist. Even as the gallerist makes more money, social and contextual capital is being lost. The structural degradation of social and contextual capital is a significant structural downside of the art fair.

The art fair has a structural bias toward undermining the threshold investment of the collector in the artist and gallery relationship. Being able to see works on what may appear to be a level playing field ignores the fact that art fair politics, as has astutely been pointed out here, is no less determinate at art fairs than it is at galleries. But there is a difference here, a very important difference in the frame of reference. In their own gallery, a gallerist answers to stakeholders like artists, collectors, and others. At an art fair gallerists must uphold the fair’s standards and interests. A fair does not represent anyone. It does not have an agency relationship to anyone. If anything, it survives on visitor interest. As we saw in the previous slide, attracting collectors by lowering the ideal threshold investment makes money for the art fair and gallerist. The art fair cultivates and depends on these organic relationships, but it is structurally conflicted and motivated to removing barriers to trade by undermining those relationships. The art fair piggybacks on relationships, while needing to undermine them in fact.

We’re still on the potential benefits of the art fairs in terms of accessibility. But there are other important potential conflicts. You might be able to see a work at the fair, but is it for sale? Or is it for sale to you? Very difficult to know at times. The incentive in the old system of galleries to hang works that were pre-sold, borrowed, or otherwise unavailable to build the feeding frenzy was negligible in comparison with that of the art fairs. There is an obvious moral hazard here. What a gallerist may or may not have done in the confines of the gallery, where their practices were under scrutiny over time by a group of often knowledgeable actors, shifts dramatically under the pressures and opportunities of an art fair cycle.

Thus the lessening of the investments by the collectors is mirrored by a weakening of obligations by the gallerist. And in the first law of thermodynamics we know that that energy is going to go somewhere. And that loyalty is going towards the art fairs themselves, at the expense of other stakeholders. The problem, however, is that gallerists can’t have the same kind of perspective as an art fair, which is a money making machine essentially. The gallerists, contrary to art fairs, are often agents, representatives, and in fact fiduciaries of their artists. More on that in a second. Let’s look a little more closely at the structure of the gallerist’s conflict with art fairs.

I invite the audience to read these two quotes. Now, I’m going to refer to Matthew Slotover a few times, not because I have anything against him, or believe that he is a pernicious agent in the art world. Simply, he’s representing a perspective that is clear and necessarily differs from that of gallerists like Ed Winkleman.

„And of course, galleries are not obliged to do art fairs. Art fairs really exist for the galleries—the galleries are our clients, and we’re there to serve them. It’s up to them whether art fairs exist; if they don’t want them to exist all they need to do is stop participating and art fairs would immediately not exist. So I think there are a lot of things being confused here.“ Matthew Slotover, Artspace Interview, 2013

„Because getting into the right art fairs (or not) can truly change the fate of a gallery, dealers are spending more and more of their time strategizing and networking other influential art dealers.“ Edward Winkleman, How to start and Run a Commercial Art Gallery

Slotover obviously knows a lot about art fairs. What makes his opinion so glib here? He is not actually responsible to anybody. He can make it up as he goes along. He does not owe a duty of loyalty, so he can be as self-interested as possible without moral ambivalence. Ed, on the other hand, is a gallerist. He has a duty of loyalty and absence of conflict of interest regarding his represented artists. But if a gallerist cannot fill demand without being at art fairs, then serving Matthew Slotover’s doublethink becomes increasingly important.

I’m not going to repeat the figures about the necessity of art fairs to the dealer’s life, we’ve had enough of that. I will sum up with a blog quote: “The most expensive booth at the Frieze Art fair will go for $80,000, but the greater risk for dealers lies in not participating.” In conclusion, the costs and economic advantage of being at an art fair will reduce the ability of mid-range galleries to remain viable. The gallerists have the choice of embracing the new paradigm and its hidden costs, or risk their existence. This conflict of interest is having a profound impact on the art world as we speak.

So then, let’s talk about what this does to our artists. Again we have quotes from Matthew Slotover and Jeff Poe:

„You know, artists can make one work a year or a thousand works a year, and they make that decision based on what they are comfortable with, what their public desires are, what their credibility desires are, and how many great ideas they have. But artists are extraordinarily strong personalities in most cases—they’re not going to let their galleries tell them what to do because of an art fair.“
Matthew Slotover, Artspace Interview, 2013

“If they are any good, they make art because they have to. They don’t do it to please the market. So for some artists, hanging out here can mess with their heads. Also, let’s face it, this is not the optimum place to exhibit work. The subtle notes in artworks are drowned out by the cacophony.”
Jeff Poe, Blum and Poe

The mythical notion that artists can exist on idealism alone, and that their personalities are immune from being affected by market forces, is an act of willful blindness, self-serving towards the art fair ideology. And let me be clear, I am not here to do a cultural critique of art fairs. I’m here to look at the ethical conflicts involved, so that we can discuss them, so that decision makers at the art fairs can respond to them, as well as all other the stakeholders in the process.

It is clear that gallerists are by law fiduciaries of the artists they represent. The investments that galleries are forced to make in the art fair model impoverish their brick-and-mortar galleries, lower the collector’s necessary ideal investment, and lower their necessary investment in the collectors. This means that their ability to represent artists changes. Their role becomes one to broker access to art fairs, but the art fairs do not represent the artist. So, on the way to adapting to the new reality, potentially surviving and making more money, the artist’s reliance on the gallery is also reduced. What’s the point of a solo show, or gallery representation, when the gallery does not bring the artist to the only game in town?

In fiduciary obligations, the key thing is loyalty. So all gallerists that represent artists are fiduciaries, and the primary responsibility they have by law to those relationships is loyalty. One of the very special things about the artist-gallerist relationship is now being shifted by the art fair ideology. And we need to be aware of what that means.

Those who are perhaps less familiar with the definition of the fiduciary relationship are invited to spend a moment on the text of this slide and I’ll come to my conclusion.

Fiduciary concept’s central rationale is “nurturing and enforcing commitments to act loyally toward the interest of others […]”
De Mott, Fiduciary Obligation Under Siege: Contemporary Challenges to the Duty to be Loyal, 1992

“The principle of altruism requires that any conflict of interests between the parties […] must be resolved in favour of the beneficiary, who is entitled to the ‘single-minded loyalty’ of the fiduciary.”
Hoyano, The Flight to the Fiduciary Haven, 2011

Loyalty, pre-art fair, could mean a vast spectrum of different responsibilities. Loyalty post-art fair may mean little more than more art fairs. Post-art fair could mean for the gallerist being nothing but a broker for the art fair ideology. This fundamentally reduces the scope of what a gallerist needs to provide, and in fact, they may fail as a fiduciary if they don’t produce this outcome. What used to be a fiduciary obligation in a broad sense to the potential of an artist’s career etc, shifts as gallerists become conflicted by the obligation to bring that represented artist to a fair, or they’re not doing their jobs, while the at the same time undermining their very relationship to that artist and their collectors.

This makes the gallerist’s life more complicated. It will become much harder to balance interests. At the same time, not chasing the money will not be an option. So there is no going back to the past practices. It’s a damned if you do, damned if you don’t situation.

And the artists are also not unaffected. They must be complicit to survive. This is why I say, those who care about what they do have to sit down and go through these questions carefully. The whole point of thinking of things in fiduciary terms is to treat certain ethical questions as more than just happenstance.

There’s no time like the present, and in fact there will be no time like the present, to take a moment to strengthen our capacities with these ethical issues. Thank you for your attention.

Nicholas O’Donnell:

Good evening everyone. First I want to start by thanking Judith and Richard for inviting me and to Ed and Elisabeth. It’s really great to be here, and for their thoughts. It’s really a privilege to participate. I’m going to talk little bit about relationships.

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

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

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

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

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

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

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

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

UCC 2-313 provides that

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

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

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

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

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

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

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

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

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

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

Did you make an agreement?

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

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

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

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

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

But here, seller in particular, beware.

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

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

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

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

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

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

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

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

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

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

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

The Rise of NYC Art Fairs – NYSBA Event – Part 1

Posted on September 13, 2014November 19, 2015 by admin

A video of Ed Winkleman’s PowerPoint presentation can be found in the section on his presentation below. A dedicated audio recording of Elizabeth Dee’s comments also precedes her text.

Judith B. Prowda

More than 90 art fairs define the rhythm of globalized art business. There are dozens of NYC art fairs. In fact, when Richard and I were planning this program we made the strategic decision to schedule it between Frieze NY, and Art Basel in Switzerland. With the rise and rise of art fairs, sheer survival in the commercial art context now requires galleries to participate in a half a dozen or more art fairs a year – from New York to Maastricht to Dubai to Hong Kong to São Paolo – with stops along the way.

Some dealers make as much as two-thirds of their sale at fairs. Art fairs have indeed transformed the business of art and even the production of contemporary art. For serious collectors the international art fair circuit is an imperative, while visiting only a few of galleries in NY, London and Berlin seems – well – almost quaint. I recall arriving a few minutes before the opening at The Euro¬pean Fine Arts Fair (TEFAF) in Maastricht and being crushed by a crowd of eager collectors who gathered impatiently for the doors to burst open at 11AM on the dot. And TEFAF is perhaps the most subdued of fairs.

On the positive side, art fairs create a global art dialogue; galleries introduce works fresh from artists studios to the international stage. For the past three years Frieze has commissioned artists projects that have been curated by Cecelia Alemani. Frieze also offers a daily program of keynote lectures, panel debates, and discussions on diverse cultural topics. And let’s not forget the glitzy parties.

Fairs have also been criticized. Participation in an art fair is a very expensive proposition – from a highly selective application process, to fees for booths shipping, insurance and travel. Mid-tier galleries which can’t afford these costs are often left at the gate. Increasingly they are confronted with the financial unsustainability of their brick and mortar.

Also – and I leave this to our gallerists to address – is the question of art production and the responsibility of dealers who may have to pressure artists to turn out a high volume of new work in order to satisfy the demand¬ing art fair calendar.

Along with the rise of art fairs, is the emergence of complex legal and ethical issues. For example, and these are but a few on the legal side – how are relationships among the relevant actors distinct from traditional dealing? How are negotiations affected? When is the handshake deal an enforceable contract? When isn’t it? What about warranties of title and authenticity? Whose jurisdiction laws apply in title disputes if a work is stolen? That of the consigner, or the good faith purchaser, or the country from where the object was stolen? Suppose a work was shipped or looted abroad without an export license? Or it turns out to be a fake, or is seized by the bank as collateral on a loan? What are the consequences?These are but a few of the legal issues.

And there are ethical concerns as well. How are conflicts of interest addressed when dealers are evaluating other dealers in the application process? Are decisions about gallery placements at the fair – fair? Are rising costs making it impossible for some dealers to compete? How are a dealer’s fiduciary duties to their artist affected?

To parse all this out, we will begin with Ed Winkleman. Ed is co-owner of Winkleman Gallery and also co-founder of the Moving Image Art Fair. He is the author of the eponymous blog that demystifies the gallery system, and the book, How to Start and Run a Commercial Art Gallery, published in 2009. Ed will offer an overview of the research on art fairs he is conducting, in preparation for his upcoming book, Selling Contemporary art: How to Navigate the Evolving Market.

Our next speaker is Elisabeth Dee. Elisabeth is the owner of the Chelsea gallery, Elizabeth Dee, and is the co-founder of the art fair, Independent New York. She has produced a number of groundbreaking, first and international exhibitions of an impressive roster of artists. She was also included in Art + Auction Magazine’s list for the 100 most powerful figures in the art world. Elizabeth will report on the chances and risks that art fairs impose from her perspective as a dealer and a founder of an art fair.

Our next speaker is attorney Richard Lehun. Richard is one of the founding members of Stropheus Art Law, one of New York’s pioneers in the provision of unbundled legal and business services to artists, gallerists, collectors and museums. Richard is one of the few people in the US to have completed a doctorate in fiduciary law cross-appointed between McGill and Harvard Law School, and is responsible for gallery, museum and auction house ethics and fiduciary duties at Stropheus Art Law. He’ll be looking at the ethical problems that fairs raise and how their potential is impacted.

Our final speaker is Nick O’Donnell. Nick is a litigation lawyer at Sullivan & Worcester LLP and the practice group leader of the firm’s art and museum group. He has spoken frequently on the topic of WWII restitution litigation, including at a conference in Heidelberg last January about the Cornelius Gurlitt affair. Nick’s widely read art law report offers commentary on legal issues affecting visual artists – the visual arts community. Nick will present on legal issues that art fairs carry with them.

I’m grateful for my employer, Sotheby’s Institute of Art, for graciously hosting this event, as so many New York State Bar Association, Entertainment, Arts and Sports Law (EASL) Section, events, in this beautiful space which is my second home. This program is part of an initiative of EASL’s Fine Arts Committee to create dialogue amongst lawyers, artists, and emerging and established art professionals working in the primary and secondary market. Two years ago we pioneered a program on legal issues for artists and galleries during Bushwick Open Studios Weekend, geared to the primary art community. Last October we held a program on Gallery Ethics and have posted an audio podcast and transcript of that program on the Stropheus Art Law website, and we will do the same for tonight’s program.

So please join me in welcoming our illustrious panel and our first speaker, Ed Winkleman.

Ed Winkleman

Good evening everyone. I would first like to start off by saying thank you to Judith and Richard for organizing this panel and what I’m going to share with you, as the previous thing mentioned, is just some of the research from my upcoming book. Its title is self explanatory, but in the context of what we’re talking about today – going further and say it really does focus on contemporary art, but the discussion today will extend beyond just that. The book is designed to help dealers strategize with the changes of in the art markets since I wrote the first book, which was about the fundamentals of opening and running a commercial art gallery. One chapter in particular that defines a big part about what has changed since 2008, when I wrote the first book, is the chapter: The Rise of the Art Fair. I’ve read a lot of the literature as well as interviewed some of the directors of major art fairs in the world as preparation for the book, and this part is what I am going to share right now.

Since 2002, despite the quote you’ll see at the top supplied by Georgina Adams, the number of art fairs in the world has exploded, and there’s a number of quotes throughout the presentation that I won’t read out, because they’re really there for flavor. I think I do want to read this one just to set the tone. The numbers here do tell the story. In 1970 there were just three main events – Cologne, Basel and the Brussels-based Art Actuel. The number has mushroomed in the past decade from 68 in 2005 to 189 in 2011. Georgina [Adams] wrote that in 2012. I’m currently counting every art fair in the world, and among contemporary fairs only – that’s fairs that show contemporary art – I’m up to 220 and I know I haven’t counted them all. If I add in the fairs that I know that exist that don’t include contemporary art, the number is close to 300 at this point. So, even from the time that Georgina wrote that, the numbers are continuing to rise. And they are showing no signs of stopping just yet. Why the explosion?

I point back to what happened at the NADA Art Fair in Miami in 2002 as the beginning of this notion that the world needed more art fairs. If you were in Miami in 2002, you’ll know that Nada was a satellite to the Art Basel Miami Beach Fair, and a very roughly organized fair by a group of young dealers. It didn’t cost very much to participate but within the four days the fair that took place, those dealers generally sold their booth out one, two, or three times over, and brought in perhaps more money than they would see through their galleries in the space of the six months previous to that. So the perception, as word trickled out, that the galleries had just made boatloads of money at that one weekend in Miami, started to change about what an art fair could be, how much it would cost to produce one, who was qualified to organize one, and eventually more and more people started beginning their own fairs, because demand just exploded.

In 2002 roughly 48 to 60 galleries participated in the NADA in Miami. The applications for the 2003 fair were four or five hundred range. So many more galleries were immediately interested in participating in that fair. Another thing that happened, though, was in response to the recession in 2008. If you’d asked any dealer at the time when they were looking at how the financial crisis impacted their ability to participate in art fairs, they would have expected the number of fairs to start dwindling. We were already having a conversation similar to this one in 2007-2008. There were so many fairs and people expected the recession to start knocking them down.

But one of the interesting things that happened was a shift in perception of who was responsible for getting collectors to the fairs. One of the people I interviewed for my book is Annette Schönholzer, the director for new initiative for Art Basel, and she said it was a surprise for her, when in 2008 and 2009, galleries started to come to her saying: “Where are the big collectors that we’re used to? They’re not here. You have to bring them here.” And Basel was saying: “We produce the fair, we put the best galleries and the best art in the fair, you’ve always been responsible for bringing the collectors.” So, being the fair that they are, Basel said: “Okay, this is what you want us to do we will go out, we’ll increase our VIP program. We will do whatever it takes to find the new collectors that are available, as well as make sure the existing collectors you know and love come to the fair.”

One of things that started to happen, though, is when they would reach out, as they would increase their VIP programming, they would send every participating gallery a package of VIP cards, and those galleries would send their cards out to all of their VIPs. Not surprisingly, some collectors would receive twenty or more VIP cards in the mail. And because they had so many extras, they would distribute them to their friends, and their friends were very often not VIP collectors. So, what you would see in the VIP lounge or at the VIP events were some of the people that the program was targeting, and then a lot of people that it was really never designed for.

So, the fairs start telling the galleries: “You give us your list of collectors and we’ll send out the VIP cards so that they’re not all getting multiple copies. That practice, in and of itself, shifted a huge amount of the power to the fairs. The fairs now had the quintessential collectors list. They had every person who has gallery’s VIP list in the world. And rather than see art fairs start to dwindle, in response to the recession, we started to see their power grow, and their numbers grow.

The other thing that is critical is that during all this time, 2002-2014, we systematically as dealers started to train collectors – that you will see the very newest, the very best, the most exciting work by our artist at the fairs. And even if they were buying them in advance, collectors started getting accustomed to the idea that this is where I purchase art. And this is where I can get an overview of the best art in the world. So, why am I spending as much time going around to all the various galleries? Now some collectors of ours have been collecting for 30 years will willingly admit that they have gone more and more to fairs and less and less to galleries individually because of this.

So, that’s the longest I am going to spend on any one of these slides, but I think that’s important for the background here. So the bottom line in terms of money out, the TEFAF Art Market Report is generated once a year. It’s commissioned by TEFAF. It’s released in conjunction with their fair in Maastricht, and it’s perhaps the best accumulation of data and statistics on the market.

It is still considered somewhat controversial because its author, Dr. Clare McAndrew, doesn’t have what some people consider the strictest methodology. Her sample sizes aren’t necessarily what somebody coming from an industry that uses reports like this as part of their business would consider that significant. But it’s the best data available. So, it does still influence perceptions. And in 2013 she reports that the total amount of money galleries spent participating in art shows was 1.9 billion Euros, and that’s money that comes from the galleries only. So, if you continue to the money – the entire art market was estimated to be 47 billion Euros in 2013, and dealers reported that 33% of their total sales were made at fairs.

I’ve done the math and I hope its right. The total money that galleries sold at fairs, and that’s not the total profit, that’s just the money they made per se, that’s just sales, was close to 16 billion Euros. So it’s more or less 8 Euros per Euro they spend at fairs. I should note that doesn’t represent the money made by every gallery at every level.

The top-tier galleries are probably making much more than that, and the lower level galleries, especially in the mid level, are quite lucky very often if they even break even. So because galleries in the emerging market or in the contemporary market generally have a 50/50 split with their artists, a gallery is probably selling twice what they are paying to participate in the fair, but they’re only receiving half of that, so it’s a one to one. This chart is probably hard to read from the back of the room, but it breaks down the sources of sales for galleries as recorded in 2013, and you can see that 33% is attributable to fairs. The breakdown is 19% for local fairs and 14% for international fairs. This is a chart showing where the most galleries are located.

You can see cities like Paris, London, New York, Tokyo. That’s not surprising that they have the most galleries. This isn’t a finalized chart, but the idea is to show the number of galleries correlates to the number of fairs that these cities also produce. So, a city with a red star on it is a city that has either a lot of fairs – or high profile fairs, very influential fairs. A city with a blue star is a city that’s either going up or coming down in terms of the number of fairs, or the importance of the fairs they have. An example might be São Paolo is coming up, its fairs are coming up its fair are gaining in importance. Berlin is going down. It’s either losing its fairs, or they aren’t as important as they used to be.

Basel is at the bottom by itself. It doesn’t have as many galleries as other cities, but it has the most important fairs, arguably. Despite that geographic dispersion of where the fairs take place, where the sales take place is pretty isolated to the United States. The TEFAF report of 2014 found that 75% percent of sales at art fairs take place at art fairs in the United States. And if you ask – and they did – the dealers around the world, 91% of them said that they needed to participate in just as many or more fairs in the United States because of those sales. If you ask galleries in New York, most will report that everything else being equal they’ll do their best business in Miami.

There’s something psychological about it. It’s where sales happen. We cynically refer to it as it’s like shooting fish in a barrel. The impact of this fair culture, this rise of the art fair on dealers includes statistics of some galleries reporting going to 15 fairs a year, that’s more than one a month. The impact of that on their gallery practice – is they either need to bring on more staff or they themselves are on the road up to 90 days of the year. That’s 90 days they’re not in their gallery, they are not with their families, they’re not as close as they need to be with their artists.

It’s having both a financial and a personal impact on the dealers. And as this quote from a New York Times article about the life on the road of the art dealers illustrates, it’s shifting the culture from this genteel practice where you would wait for someone to come into your gallery or you would have this leisurely conversation with them, to one where you’re constantly on the road and everything is happening much more quickly.

The impact on artists is probably ten times worse in my opinion. At the fairs, the top metric of the success for any given artwork is whether it’s sold or not. And that starts to influence what artists give their galleries to take to the fairs. They want to be a success. They want the piece at the fair to sell. Also, for the galleries to get into the best fairs, and to please the collectors that come to those fairs, there’s an expectation that to every fair you’re bringing something new.

I’ve had a number of collectors complain as they were walking around one of the fairs we were participating in: “I saw that at this other fair” I saw that at that gallery, at a show they had.” And the perception is that artists can’t be doing very well if a piece I saw in a gallery is now at a fair, or a piece that I saw at one fair is now at another fair. And so to create the impression that all of your artists are very successful as well as to please the collectors that come to the fairs to see something new, galleries are constantly saying: “I need something new,” and by saying that the artists are responding to it.

Even if an artist has a very clear head about it their still compartmentalizing their practice. They’re making some works specifically for the fairs and the other work that they’re compelled to make. So, the overall impact of this is something that people are now referring to as “art fair fatigue.” And you’ll see a number of articles and the literature about it.

There are even clever little articles on how to deal with art fair fatigue, what shoes to wear and what spot to be is forming around airports, etc. Despite art fair fatigue, though, 45% of dealer felt that they will still invest in more fairs internationally. I think it’s said that there is a cultural backlash, where more and more dealers are saying: “I want you the collector to come to my galleries, instead of just meeting me at the fair.” A lot of dealers are saying just that to their collectors: “Come visit me. You won’t see at the fairs what we’re doing at the galleries. It’s important for you to be involved in the dialogue that’s happening in the gallery, and for you to come to the gallery.”

And some galleries in Chelsea have enough in the gallery and they don’t see the need to increase the number of fairs they are participating in, but remember that 17% of the sales happening is local, and for New Yorkers, they’re local for US fairs that are selling the most anyway. So, and that is it. Thank you.

Elisabeth Dee

I didn’t prepare a formal presentation, because we have so many tonight, and I’m typically Ed’s sparring partner, someone to play that role. Ed, thank you so much for giving us your insightful analysis on the situation with fairs and what the risks, rewards, and consequences can be. I’m going to speak primarily from, or just engage a little bit, primarily, from the gallerist’s point of view, because we are the two gallerists and art fair founders.

I founded a fair called Independent, which takes place twice annually in March and November at the former DIA Center for the Arts. And I think it’s really critical to talk about the dynamic of fairs, vis-à-vis those that were founded by gallerists and run by gallerists, and those that have become more institutionalized, or more of their own private enterprises.

Art Basel was founded by Ernst Beyeler who was a very important noted gallerist, a historical gallerist. And I think it’s important to think about gallerists coming together to collaborate on the issues of the day and present them mutually. What Ed said was so insightful. With the shift to a more corporate culture of art fair management, gallerists have lost certain protections that they once enjoyed. I’m not saying that there have not been benefits in that things have become more of an open and transparent market for collectors and for other gallerists to see what’s truly going on.

When you have 180 galleries from all over the world one is able to get a great index – however, I think there are certain concerns that gallerists only know and certain information that gallerists only trade with each other, that can inform and develop fair culture in a more meaningful and in some ways more progressive way. And that is why Ed and I both have started fairs with our gallery colleagues. Would you agree?

Ed Winkleman: Yeah. Elisabeth and I were on a panel all together at Art Basel last summer, and it was about the way that galleries who have been in business for a while aren’t necessarily surviving as well as the top-tier are. And the moderator said in response to what was talking about the number of fairs we were doing and the costs, and the personal costs: “But you both started fairs yourself, so aren’t you both responsible for this in some way?” To which our response was: “We started alternative fairs that are actually not only art driven, they are gallery-centric. Both of our fairs are trying to solve some of the issues that we see with some of the bigger fairs. I think that the fair model itself has a long way to go to even catch up what the galleries are able to do. I don’t even necessarily think that even the galleries are the quintessentially best context in which to view art. My favorite place to view art is in a collector’s home. But I think, through efforts like Independent and some of the fairs out there – pushing the model here and there, experimenting with it, trying to find a better way – because I don’t think the fairs are going away. But I think they have a long way ago.

Elisabeth Dee: I completely agree. I also think that given the kind of economy that we’ve created, as gallerists, doing gallery-centric fairs, it’s allowed for more kinds of experimentation in the art fair model. When I first started in 2002, one of my first fairs I ever did was NADA. I think that my costs annually in doing fairs, as an emerging gallery, was probably 25 or 30 thousand dollars. Now I spend over a quarter of a million dollars in fairs, and I’m not a large gallery. And I still want to develop artists and introduce artists and develop strategic, curatorial support for my artists – not just sales. And to me that balance is critical for the development of artists in a sustainable way.

So, when you work with many fair organizations and their economies, which are very expensive, you can see your profit margins going all the way down to 50% or 30% of the revenue that you would normally have in the gallery. One has to really analyze and consider those factors. And I think that what we’ve been able to do with Moving Image, which is Ed’s fair – which is devoted to video art, and keeping costs to a place where gallerists can afford to take the risk of introducing new material – or Independent, which is also equally inexpensive, even for the emerging gallery in Europe that may be doing their first fairs of their gallery’s career and their artist’s career.

It’s really important to be able to think about new creative economies for gallerists that aren’t selling things that are a million dollars on the stand, and who want to develop a dialogue and a programmatic curatorial conversation around their program. I think it’s wonderful that we now have so many fairs to choose from, in terms of how we spend our time and our own personal research of galleries and their programs. And I think it offers a lot. I think these kinds of initiatives help the gallerist face the realities of the economy as they grow and develop as galleries.

Ed Winkleman: You have one thing there I’m going to read off of, because I think this is a really interesting point, in the context of this conversation would be great to talk about: the ethical question of galleries being the gatekeeper’s to these fairs. They’re so important and 33% percent of your sales and your competitors have a say whether or not you get in to better fares.

Elisabeth Dee: We switched topics, okay. Because that wasn’t a part of your talk, I didn’t want to introduce a new topic. But, as we know fairs impose certain challenges for the gallerist who is looking to enter a system that already exists; whether it’s Frieze at 180 galleries or art Basel at 200 galleries. Many of the galleries have been are there for many, many years, with very strong programs – and it’s very competitive.

Maintaining a position in those fairs is also competitive, and the decision-making process of these fairs is extremely problematic from my point of view. There’s no system for rating your peers. When you’re invited to be on art fair selection committees, of which I have been on many, I have been pondering this question: how does one objectively analyze a program wants to be part of a fair. What’s the evaluation system? How do you evaluate curatorial programs on a basis of merit against other galleries that may be of a different generation, but still working with the primary market? How do you handle aspects of their own reputation in the field? What is their standing with collectors? What is their standing with artists? Have they simply careers of artists and put them into the program, or have they actually done strategic development for those artists? There are no clear factors to address this.

And when gallerists get together, even really, really accomplished gallerists may be very unaware of certain programs in certain geographical regions or certain generational regions. I feel that the fair can be often at a disadvantage making decisions about its content and its participants based on a group of dealers that may not have the right tools in order to evaluate this properly. You also have factors of politics involved, because dealers do work together. They often share artists. There is often a long history of working together or competing with each other.

There can be a lot of political factors that are unfair in evaluating other galleries based on subjective experiences that people bring to the table when they have to vote. And this can be quite problematic for many galleries who can be part of these fairs and for the reason of one single committee member be eliminated from the fair for many years and have to deal with the issues that ensue once one was part of something and is now no longer able to participate – nominally for the artists they represent. But the financial impact can be often huge and sometimes extremely debilitating to certain galleries. This is something that I think this has not been clearly addressed in the fair system and I think deserves to be

Ed Winkleman: I totally agree. I don’t know what the answer could be. With Moving Image we have selection by a curatorial advising committee, so it’s not other galleries choosing the participants, it’s curators, but even that is far from a perfect system. I don’t know what would be the perfect system honestly.

Elisabeth Dee: And at Independent we’ve gone the totally opposite route, where no, it’s invitational process with one curatorial advisor, and we have no system for application because we don’t feel we have an adequate system at hand to evaluate those applications.

Ed Winkleman: But there’s no question the impact of certain galleries can be huge and politics plays into it. The chatter that goes around after the list comes out for any big fair…

Richard Lehun: But I think both of you are speaking to very key issue. that I’m also trying to give a structural analysis to, but I’ll wait to do that. I want to just underscore that I think often from a legal point of view, we often as lawyers are not necessarily paying enough attention to. I think the very fact of being able to bring the issues out into the open, to be able to frame them, and to bring stakeholders in and have stakeholders address those problems is very key to whatever a solution might be. The greatest difficulty is to have stakeholders feeling like they’re somehow affected by the process, for which there is no voice or language. And that’s one of the things that were trying to do with these outreach events is encourage a community that has been long entrenched in a kind of self-mythology, which is been both self-serving and also protective. But some of these protective strategies about information, about one’s own positioning, might be devastating bad in times of turbulent change – where the exchange of information and the building of mutual understandings about outcomes, desirable outcomes are necessary, and where those things can’t be done ad hoc anymore, independent of what powerful actors can do on their own. But a collective understanding can only be achieved by this type of bringing to language, bringing into the foreground the multiplicity of issues that you guys are speaking of. I’ll turn the word back to both of you.

Judith B. Prowda: Absolutely. Please Continue.

Elisabeth Dee: We talked about the position of protecting the gallerist. We talked about the need for a peer rating system and how the fairs are organized. One thing we touched on was the cost, but we didn’t really go into that in great detail. I think that also deserves a few minutes. Because, when one art fair raises their prices, the other art fairs that are competitive with that fair tend to follow suit.

We’ve seen that before, especially in recent years the cost that has increased, particularly in New York and London. Galleries fight very hard to sell over these costs, to make their enterprises worthwhile there. The question that I keep asking myself and as gallerists, I think we ask together is – what rights the galleries have and what responsibilities do fairs have to the galleries with regards to these costs.

Clearly a light bulb doesn’t cost $2000 an outlet doesn’t cost $1000, even a Swiss one. As a gallerist, you start to feel like you’re not the client. And we are the clients of these fairs. We generate the revenue for the fair, and we also generate the revenue for all the artists, for all the creators of the works in the fair and that is our unique responsibility. But we do not have leverage over how these costs are allocated. We don’t have a clear system for addressing them with the fair organizers, which clearly have to make a profit as a sound business, but to what degree? I don’t know about the statistics, maybe you do, but I have heard that the application to Art Basel … just the fee alone … I can’t remember how much we paid for that.

Ed Winkleman: Four to six hundred dollars …

Elisabeth Dee: … four to six hundred dollar application fee. And given the level of applications they have, because of their stature, they do well over one million dollars on application fees alone. Now is that being given back to the project, and in what form? And how does one responsibly handle that. This is something that I’d like to see addressed in a more systematized way.

Ed Winkleman: I think I can flesh this out a little bit. From talking to some of the director’s of the fairs for the book, they collectively report not making as much money as it looks like they’re making, and that may not be surprising but the details are. There is a building where an art fair takes place in a major city. I won’t give too much away, that I think, 10 years ago, cost $70,000 to rent for the week, or week and a half. It now costs over $400,000 in 10 years. So, it’s not the fair that is just always raising their prices. It’s everybody around them knowing people are coming for this fair. I’ve got a captive audience.

If you try to get a hotel in Miami during Basel on Miami Beach, you know that everybody’s caught on. The costs are through the roof, across the board. And if you’re working with union workers to assemble or produce your fair, you’ve got a bunch of extra costs and things there. I don’t want to give any names but almost to a person, each Art Fair organizer has a long list, from their point of view, of rising costs which would make it impossible for them to lower their prices that they charge the galleries.

Elisabeth Dee: I still believe that fairs are a place to exhibits innovation in the field and when fairs cost this level of money to participate – how can one afford the risk of introducing new ideas? New ideas and new artists become risk factors for gallerists, and so that’s what you’re not seeing, innovation. One could be seeing it if there was some way to have a forum where some of these conversations could be discussed and responded to with art fair organizers. I think we’d be in a better position, I think we have the better content.

Art Fairs: Panel Discussion on May 27th at Sotheby’s Institute of Art

Posted on May 20, 2014November 18, 2015 by admin

Art Fairs: An Irresistible Force in the Art World?

Tuesday May, 27^th2014

Panel Discussion and Q & A: 6.30-8PM

Wine and Cheese Reception: 8-9 PM

Sotheby’s Institute of Art, 570 Lexington Ave, New York, NY

Register here.

Are brick and mortar art galleries the loss leaders in an art world potentially spiraling beyond viable limits? More than ninety art fairs now define the rhythm of globalized art business. This development has profoundly altered the relationships of artists, gallerists, and collectors.

The Entertainment, Arts and Sports Law Section of the New York State Bar Association is holding a panel on the impacts and challenges – legal, ethical and business – of the rise of art fairs. This program is part of an initiative to create dialogue amongst lawyers and emerging and established art professionals working in the primary or secondary markets.

Gallerist Elizabeth Dee will report on the chances and risks that the art fairs impose, in light of the ambitious expansion that her gallery has recently embraced and her perspective as Co-Founder of the art fair, Independent, New York.

Attorney Richard M. Lehun of Stropheus Art Law will examine the plethora of ethical and business issues that art fair participants confront.

Attorney Nicholas M. O’Donnell, a litigation partner at Sullivan & Worcester LLP, will present on the legal issues that art fairs carry with them.

Gallerist Edward Winkleman will offer an overview of the research he is conducting on art fairs in preparation for his upcoming book “Selling Contemporary Art: How to Navigate the Evolving Market” (Allworth Press).

The panel will be moderated by attorney, educator, mediator, and arbitrator Judith B. Prowda, Faculty at Sotheby’s Institute of Art and author of Visual Arts and the Law: A Handbook for Professionals (Lund Humphries 2013).

15 Minutes on Copyright for Visual Artists & Gallerists

Posted on May 5, 2014April 24, 2017 by Judith Prowda

I’m [linkedinbadge linkedinbadge URL=”http://www.linkedin.com/in/judithprowda” connections=”on” mode=”icon” liname=”Judith Prowda”] I will be giving a 2-part talk on Art and Copyright.

One of the most difficult challenges for courts today is drawing the line between legal appropriation and copyright infringement. This is especially important in today’s digital environment, where the possibilities for artists to appropriate have increased dramatically in recent years.

Part I of my talk will focus on Copyright Basics.

Part II on Copyright Infringement and examples of leading court cases.

The purpose of these presentations is to give you some background on basic copyright principles in the U.S.

First, what is copyright?

Copyright is a form of intellectual property, that is, a creation of the mind, that protects materialized forms of artistic expression for a specified period of time. Copyright applies to works in tangible objects and works in digital form.

How long does copyright last?

The copyright term for works created on or after January 1, 1978 is subject to the 1976 Copyright Act.

For works by a known individual author, the copyright runs form the date of creation, and lasts the life of the author plus 70 years. 17 U.S.C. § 302(a). The copyright for joint works – that is, works created by two or more authors – lasts the life of the longest living co-author.

If the work is a “work for hire,” copyright lasts the shorter of 95 years from publication or 120 years from creation. I will not be discussing works for hire in this presentation.

For works created before January 1, 1978, I suggest you consult a chart at www.copyright.cornell.edu.

the end of the copyright term, the work is ejected into the public domain and is available for anyone to use without the author’s permission.

What is the public domain?

When a work is no longer protected by copyright. The copyright has expired.And anyone can use it without any legal repercussion.

Whereas copyright in the U.S. is based on economic incentive, by contrast, copyright law in civil law countries, including Continental Europe, emphasizes authors’ rights and generally affords greater protection to authors, with a strong emphasis on moral rights. Moral rights protect the non-economic and personal aspects of an author’s creation. The artwork embodies the artist’s personality, since the artist, in the process of creation, injects some of his spirit into the art.

Copyright a Constitutional Right

The basis of copyright law in the U.S. is embedded in Article I, section 8, clause 8 of the U.S. Constitution:

The Congress shall have Power … To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

Copyright has an Economic Purpose

The purpose behind copyright in the U.S. is economic. The goal is to motivate people to create works that will enrich the public domain. Copyright does this by giving the creator a sort of monopoly over their works of genius for a limited period of time. This economic quid pro quo gives an author an incentive to create and is at the very core of Anglo-American copyright philosophy. Copyright is perhaps an artist’s most valuable economic right and it persists in a work even after the work is sold. What the artist retains is a bundle of exclusive rights, which I will be discussing in a moment.

Formalities

Until fairly recently, there were a number of formalities that had to be satisfied in order to obtain copyright protection. For example, placement of the word “copyright” or symbol © on a published work; registration with the Copyright Office; and deposit of copies with the Library of Congress. Unpublished works were protected under state law, but not federal law.

Under the 1976 Act, which went into effect January 1, 1978, a work was automatically protected as long as it met the substantive requirements (copyrightable subject matter, originality and fixation). Also, the 1976 Act replaced the dual state/federal system, and now unpublished works were protected as well.

With U.S. accession to the Berne Convention in 1988, notice of copyright became permissive (rather than required) for works created on or after March 1, 1989. However, registration with the Copyright Office is a prerequisite for filing a lawsuit.

Requirements

As I mentioned, under the U.S. Copyright Act of 1976, a work that satisfies the substantive requirements of copyright (copyrightable subject matter, originality, and fixation) automatically receives copyright protection.

Works Protected

In the U.S., copyright protects the following categories of works, as enumerated in Section 102 of the 1976 Act, and further defined in Section 101. These are:

Literary work
Musical works, including lyrics
Dramatic works, including any accompanying music
Pantomimes and choreographic works
PICTORIAL, GRAPHIC, AND SCULPTURAL WORKS (the topic of our discussion)
Motion pictures and other audiovisual works
Sound recordings
Architectural works
Software

If the work does not fall within any of these categories, it will not be afforded copyright protection.

Pictorial graphic and sculptural works are defined as: two-dimensional and three-dimensional works of fine, graphic, and applied art, photographs, prints and art reproductions, maps, globes, charts, diagrams, models and technical drawings, including architectural plans.

Useful Articles not Protected

They do not include designs of “useful articles” unless the designs are physically or conceptually separable from the utilitarian aspects of the object.

An example of a useful article that was deemed copyrightable is a lamp base. In 1954, the U.S. Supreme Court held in Mazer v. Stein that a decorative mass-produced lamp base could stand alone as a copyrightable work of art and was therefore eligible for copyright protection, notwithstanding that it served a utilitarian purpose as a lamp base.

Artistic elements that are conceptually separable from the utilitarian aspects of the work may also be copyrightable in some cases. Kieselstein-Cord v. Accessories by Pearl, Inc. involved a high-end jeweler’s design of two belt buckles that featured ornate sculptured designs cast in precious metals. The Second Circuit found that the conceptually separable elements were protected under copyright.

Ideas are not Protected

Copyright law protects the expression of an idea, but not the idea itself, no matter how original. No one can copyright the idea of a haystack or even a series of paintings of haystacks at different times of day. What is protected is the artist’s particular rendering of the scene – in other words, the expression. If someone copied the particular details of color, brush strokes, light, shadow, overall perspective, they may have crossed the infringement line.

How close is too close? The challenge of distinguishing between idea and expression is perhaps no more evident than in the case of visual arts. Frequently, the line between idea and expression is subtle and open to interpretation. For example, in Steinberg v. Columbia Pictures, a NY District Court considered Steinberg’s 1975 iconic map of the world representing an “egocentrically myopic perspective” of New Yorkers an idea.

However, certain details of the defendant’s movie poster, including generally “New Yorkish structures” were substantially similar to those in Steinberg’s drawings. Pushing the boundaries even further, the court found that even “style is one ingredient of ‘expression,’” and that the “sketchy, whimsical style” of Steinberg’s map with New York at the center was protectable.There are situations, however, where idea and expression are so intertwined that there is only one, or very few, ways of expressing an idea. In such cases, the idea and expression are said to merge. To allow copyright protection would essentially grant a monopoly on the idea.

Merger Doctrine

Courts have therefore developed the merger doctrine, which provides that when the idea and expression merge, the expression is not protected by copyright. Courts often apply the merger doctrine when a work is representational of an animal or natural phenomenon. If a work is lifelike, a copyright protection may prevent others from representing a creation of nature. In Dyer v. Napier, a mother mountain lion carrying a cub in her mouth is an idea first expressed in nature. Therefore, a photographer’s work to achieve this “ideal pose” was not copyrightable since the pose was one that naturally occurred and was instinctive in nature.

Originality

The second requirement of copyright, after appropriate subject matter, is originality. In the U.S., originality does not mean novelty. It simply means that a work was created independently by the author, not copied from someone else. Therefore, if two artists independently produced identical or substantially similar images, both would satisfy the originality requirement.

In one early twentieth century case, the U.S. Supreme Court upheld the copyright in the reproduction of posters of a traveling circus. The Court held that the plaintiffs’ posters were copyrightable, stating, “Others are free to copy the original [subject matter depicted]. They are not free to copy the copy . . . The copy is the personal reaction of an individual upon nature.”

Fixation

In the U.S., there is a third requirement for copyright protection – fixation. A work must be fixed in a tangible means of expression for a period of more than a transitory duration. How long is that? The copyright statute does not say. Certain artworks, especially conceptual works, may fall outside the purview of copyright protection. What is protected is the physical or digital manifestation of the work.

Bundle of Exclusive Rights

The copyright owner (in the case of artworks, this is generally the artist), is entitled to a bundle of exclusive rights listed here.

Right to reproduce
Right to prepare derivative works
Right to distribute copies (subject to the First Sale Doctrine)
Right to perform
Right to display (subject to the First Sale Doctrine)

Right to Reproduce

The right to reproduce is perhaps the most basic of the exclusive rights. It is the exclusive right to reproduce the copyrighted work by any means, even within the temporary memory of a computer. This right protects against copying in any medium, including uploading of files to the Internet, and downloading attachments and files and graphics from websites. The reproduction right may apply when works of art are broadcast, even for a few seconds, subject only to a fair use defense.

Right to make Derivative Works

The exclusive right to make derivative works, that is, adaptations, of the copyrighted work is the second of the exclusive rights This right overlaps with the right to reproduce, but is broader because reproduction requires fixation in copies, whereas the preparation of a derivative work, such as a dance or performance, may be an infringement even though nothing is ever fixed in a tangible form. Examples include a photograph of a painting protected by copyright, a translation, or screenplay based on a novel.

Right to Distribute

The right to distribute is the exclusive right to distribute copies of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease or lending. Under this provision, the copyright owner has the right to control the first public release and distribution of an authorized copy – either in physical or digital format.

First Sale Doctrine

However, an important limitation exists under the First Sale Doctrine. The First Sale Doctrine provides that the owner of a particular lawfully made copy or any person authorized by the owner, may, without the authority of the copyright owner, sell, display, or otherwise dispose of the possession of that copy. Once the copyright owner of a particular item has parted with ownership of it, the copyright owner’s right to distribute ceases. Therefore, the purchaser of a painting has the right to resell, donate or otherwise distribute the painting (subject to any contract terms, of course) without the copyright owner’s authorization.

Right to Perform

The right to perform typically applies to musical, dramatic, choreographic, motion pictures, and audiovisual works. It does not usually apply to pictorial, graphic, or sculptural works, although, in theory, it may apply to performance art. The right to display provision is the first explicit statutory recognition in U.S. copyright law of an exclusive right to show a copyrighted work, or an image of it, to the public. “To display” is “to show a copy . . . either directly or by means of a film, slide, television image, or any other device or process.” The right to display is also subject to the First Sale Doctrine limitation. Therefore, a lawful owner of a copy of a work may display it to viewers present in the place where the work is located (for example, a museum or gallery), but not online, without the consent of the copyright owner.

This concludes Art and Copyright, Part I.

Next I will discuss Copyright Infringement and Fair Use, focusing on appropriation art cases.

Perelman Gagosian Lawsuit: Judge Kapnick admits Fraud Claim

Posted on February 11, 2014November 18, 2015 by Richard Lehun

In the latest development in the Perelman Gagosian Lawsuit, Judge Kapnick has dismissed all causes of action, except for fraud related to exchange transactions that included Cy Twombly’s “Leaving Paphos Ringed With Waves.”

The amended complaint had included six claims: breach of contract, breach of fiduciary duty, fraud, breach of the covenant of good faith and fair dealing, unjust enrichment, and deceptive business practices under section 349 of the General Business Law.

This case is important because it raises the question of whether a dominant art context actor like Larry Gagosian has a higher legal burden of accountability and transparency, even that of a fiduciary standard, because of the influence he wields.

Judge Kapnick reinforces that “allegations of superior knowledge or expertise in the art field are per se insufficient to establish the existence of a fiduciary relationship.” The majority of knowledge and power differentials in the art world remain immune to fiduciary review. However, the fiduciary question is central to the complaint, and is referenced twice in the decision, each time dismissed not on substantive grounds, but rather on the specifics of this case. Larry Gagosian’s potential fiduciary exposure appears to be strongly connected to the objective status of the buyer.

The court argues that the “essential elements of a fiduciary relationship are ‘de facto control and dominance.'” There is no question that Larry Gagosian, and those working with him, have at times dominance and control over the market for certain artworks, or even for those of specific artists. Judge Kapnick stresses several times that Perelman contracted through MAFG Art Fund and Macandrews & Forbes Group LLC, and that together they are legally represented, “experienced and sophisticated business investors who entered into negotiated, arm’s-length transactions with defendants.” These facts preclude the finding of fiduciary obligations.

But the decision does not explicitly rule out that someone with comparable influence could be found subject to fiduciary obligations with another buyer. In fact, the court even makes the distinction that the specifics of the relationship between Perelman and Gagosian, who “were friends for 20 years, ‘socialized together,’ were ‘business acquaintances,’ had ‘worked together’ previously and invested together, cannot be addressed because […] Perelman is not named as a party.” Not because such a consideration would be in and of itself impossible. Of course, the finding of a fiduciary standard would not be conclusive in and of itself. Once a fiduciary relationship was established, relief would depend on showing misconduct, and that damages directly resulted from it. These factors can be difficult to prove, and remain a built-in hurdle to uncontrolled fiduciary exposure.

Despite opening the fiduciary door, and then shutting it on these facts, Judge Kapnick focuses on overlapping considerations. The court cannot deny by law that Gagosian “has enormous power to influence, and even set, the markets for the artists he represents because of his impressive roster of artists and his access to and knowledge of the largest private art collections in the world.” As a result, a buyer may be entitled by law to rely on Gagosian’s representations regarding the art market and the value of particular works of art, even if they are sophisticated art collectors and investors.

The potential for increased exposure, based on de facto control and dominance, that can equitably cut through private ordering and force a party to exercise a higher standard of care – call it what you will – feels to me like a harbinger of fiduciary duties to come.

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Five Art Law Facts that Art Business Professionals Need to Know

Posted on January 15, 2014November 18, 2015 by Judith Prowda

In this series of brief overviews, [linkedinbadge linkedinbadge URL=”http://www.linkedin.com/in/judithprowda” connections=”on” mode=”icon” liname=”Judith Prowda”] will distill important art law issues that are often overlooked or misunderstood. Today’s installment will cover the following five topics: (i) Protection of artists under New York’s amended consignment law; (ii) Commercial laws that protect collectors who buy art from a dealer; (iii) Importance of written contracts; (iv) Statute of limitations for breach of warranty of authenticity; (v) and Conflict of laws concerning ownership of stolen art.

I. New Precautions Under New York’s Amended Consignment Statute

Dealers doing business in New York are on notice that breach of the New York Arts and Cultural Affairs Law (NYACAL) consignment provisions can now lead to severe penalties, including criminal sanctions.

Effective November 6, 2012, a New York law protects artists and their heirs who consign works of fine art to dealers by strengthening existing trust property and fund provisions of the NYACAL.

The purpose of the consignment laws is to protect artists in cases where a dealer refuses to return an artist’s work or deliver sales proceeds to the artist. The law also shields artists against claims by the dealer’s creditors, that is, those people to whom the dealer owes money.

Before the law was amended, there was nothing that prevented unscrupulous dealers, such as Salander-O’Reilly (which filed for bankruptcy in 2007), from comingling sales proceeds with their own funds. The gallery’s creditors attempted to claim the consigned artworks as assets of the bankruptcy estate. As a result, many clients, including artists’ children, had to buy back their artwork from the bankruptcy estate.

In response to these egregious problems, the law was amended to provide that works of art (and their proceeds) consigned by artists or their heirs to art dealers are deemed property held in “statutory trust.” As such, the works (and their proceeds) do not become the property of the dealer or the dealer’s.creditors, or subordinate to “claims, liens or security interests” of a dealer’s creditors. In certain circumstances, the artist may waive the trust fund protection, but the waiver must be clear and conspicuous and in a signed writing.

In addition, dealers are subject to the fiduciary requirements under New York’s Estates, Powers and Trusts Law with respect to consigned works. These provisions require the dealer to segregate and hold sales proceeds in trust for the artist. A dealer who violates this provision may be criminally sanctioned and required to pay attorneys’ fees to artists in civil suits.

II. Commercial Laws Protecting Reasonable Expectations of Buyers

One of the most important questions to ask when purchasing art is whether the work is free and clear of liens or other encumbrances now and in the future.

In the U.S., the Uniform Commercial Code (U.C.C.), enacted in every state including New York, regulates the transfer of art. Under the U.C.C., purchasers of art acquire all title (that is, ownership rights) to which his transferor had or had power to transfer. However, two prominent exceptions exist to protect reasonable expectations of buyers: voidable title and entrustment.

Under the voidable title rule, if the original owner has delivered an artwork to a merchant (for example a dealer), who sells the property to a good faith purchaser for value, that purchaser has acquired good title to the artwork, even if it turns out that the transaction was a result of fraud or deceit. The key is that the original owner voluntarily relinquished possession and intended to transfer title. For example, suppose A delivers a painting to Dealer to sell to B, who pays with a bad check. Or Dealer sells to C instead of B. In either instance, the buyer keeps the work free and clear and A must seek compensation from Dealer.

Similarly, under the entrustment rule, if a person entrusts (voluntarily transfers) possession of an artwork to a merchant (for example, a dealer), and that merchant sells the work to a “buyer in the ordinary course of business,” the buyer can acquire good title (ownership rights) to the artwork. The entrustment exception applies only to purchasers who are buyers in the ordinary course of business, that is, persons who (i) purchase in good faith, (ii) without knowledge that the sale violates another’s interest, and (iii) in the ordinary course of business from a person (other than a pawnbroker) in the business of selling goods of that kind.

To illustrate entrustment, let’s say A delivers a painting to Dealer, not intending to consign it, but for another purpose, such as to have it restored, framed, or lent to a museum. Without obtaining A’s permission, Dealer sells the painting to B, a buyer in the ordinary course of business, who is innocent of any wrongdoing. B can acquire good title to the painting, even though A never intended to sell the painting.

Buyers of art should exercise caution before purchasing significant works of art even when purchasing through a dealer who represents and warrants that the art is free and clear of all liens and will remain so in the future. Taking precautions, such as checking with the Art Loss Register, searching the U.C.C. databases, and doing a Google search, can often screen for the most likely claims from prior owners, secured creditors, or gifts promised to institutions.

III. Oral vs. Written Contracts

Since the art world’s culture is based on trust, agreements between artists and dealers are often sealed with a handshake. However, without the benefit of a written document, there is no record of their arrangement, and even a minor problem can sometimes escalate to a major dispute.

Simply put, oral contracts work well until they don’t. The possibility of misunderstanding over responsibilities and expectations becomes fuel for discord and may cause the relationship to unravel. An additional consideration is the statute of frauds, which requires that contracts for promises that cannot be fully performed within one year and for sales of goods (not services) of $500 or more be in writing to be enforceable.

The importance of a written contract is illustrated in cases where artists or dealers have tried to enforce terms of an alleged oral agreement. Because of the statute of frauds and other obstacles, parties to an alleged oral agreement have encountered difficulties in enforcing the agreement’s terms.

An example of an oral contract that went awry concerned an agreement between the legendary American artist Georgia O’Keeffe (1887-1987) and her long-time sales agent Doris Bry, for the return of artworks and photographs by her late husband, photographer Alfred Stieglitz, as well as an accounting of any monies due on sales. Bry counterclaimed that O’Keeffe had made a number of oral promises, including the promise to make Bry the exclusive sales agent during O’Keeffe’s lifetime and after her death and to appoint Bry as executor of O’Keeffe’s estate.

O’Keeffe sought dismissal of Bry’s counterclaims, alleging they were barred by the statute of frauds. The court agreed with O’Keeffe, holding that the alleged promises were unenforceable absent a written agreement. O’Keeffe v. Bry, 456 F. Supp. 822 (S.D.N.Y. 1978)

IV. Statute of Limitations for Breach of Warranty of Authenticity

When a purchaser of an artwork later discovers that the work is not authentic, the statute of limitations under the U.C.C. for a suit against the seller is four years after the breach of authenticity occurs. (Major auction houses warrant authorship for five years from the date of sale.)

The problem is that few buyers question the authenticity of a work they have acquired until they are preparing to sell it, exhibit it publicly, have it examined by an expert to be included in a catalogue raisonné or for another purpose – which may occur many years after the statute of limitations has expired. The key question becomes the date that the statute of limitations begins to run – on the date of the seller delivers the work to the buyer, or at the time the buyer discovers the breach of warranty? In the majority of states, including New York, the breach of warranty begins to run when the seller delivers the work to the purchaser, unless the warranty explicitly extends to “future performance.”

This principle is well illustrated in Rosen v. Spanierman, 894 F.2d 28 (1990), one of the leading cases on warranty of authenticity involving the statute of limitations. Here, the plaintiffs purchased a painting entitled The Misses Wertheimer from the Spanierman Gallery in New York for $15,000 in 1968. The gallery provided them with a full warranty on the painting as an original Jean Singer Sargent, and mailed certificates of appraisal for insurance purposes on five occasions between 1975 and 1986. In 1987, the plaintiffs decided to sell the painting, then valued between $175,000 and $250,000. Upon consigning the painting to Christie’s, the plaintiffs were informed that it was a fake.

The plaintiffs commenced an action against Spanierman in 1987 for breach of warranty arguing, among other claims, that the repeatedly issued certificates extended the warranty to future performance. The court rigorously applied the four-year statute of limitations, holding that the warranty did not extend to future performance, and noted that the plaintiffs could have discovered the defect just as easily immediately after the sale as later. Requiring a purchaser to obtain an appraisal from an expert other than the seller “is not an onerous burden.”

At present, the District Court of Hawaii is the only court in the U.S. to allow a breach of express warranty of authenticity claim beyond the four-year statute of limitations, which tolls the date “until such time as the defect […] was, or reasonably should have been discovered.” Balog v. Center Art Gallery-Hawaii, Inc., 745 F.Supp. 1556 (D. Haw. 1990).

Therefore, buyers of works of art in the U.S. should assume they must bring any authenticity claim within the four-year limitations period.

V. Stolen Art

In an increasingly global art market, one of the most problematic areas of concern is whether a collector has unwittingly acquired a work that was previously stolen. Courts have vastly different approaches to disputes over ownership to stolen property, and cases may (and often do) depend on technical defenses available in different jurisdictions.

In the U.S., a basic principle is that a thief cannot pass good title, not even to a good faith purchaser, nor can anyone further down the chain of ownership. Therefore, a good faith purchaser can be forced to surrender an artwork without any compensation to the original owner, absent a valid defense, such as the expiration of the statute of limitations.

By contrast, the civil codes in most continental European countries are more favorable to good faith purchasers, who may acquire good title to stolen artwork after a prescriptive period, that is, the passage of time, which can be a short period.

Therefore, as art owners and their heirs (including claimants of art looted during the Nazi era) come forward, sometimes after many decades, to claim property from good faith purchasers, courts are confronted with difficult questions that are complicated by choice of law and statutes of limitation, and must decide legal title to the work as between the original owner and heir on one hand, and a good faith purchaser on the other.

Because there is no central registry to record title to art, independently verifying the provenance and including strong representations and warranties from the seller with regard to ownership are imperative. As mentioned above, Art Loss Register is one prominent database. Others include the FBI and Interpol. To be sure that a work was not stolen during the Nazi era, buyers should check databases, such as http://www.lostart.de/Webs/DE/Start/Index.html, http://www.lootedart.com/ and http://www.artrecovery.com/. Another database, http://icom.museum/spoliation.html, provides links to databases of individual countries for the identification and return of looted or stolen Jewish property. Another way for collectors to reduce risk is to obtain title insurance, which is now available for fine art and other important collectibles.

US Copyright Office on Artist Resale Rights: Full Text

Posted on December 14, 2013November 18, 2015 by admin

Artist Resale Rights in the US?

“In general, visual artists do not share in the long-term financial success of their works. […] Instead, the financial gains from the resale of their works inure primarily to third parties such as auction houses, collectors, and art galleries. Moreover, the income typically available to other authors through reproduction and derivative uses of their works is more limited for artists. […] The Copyright Office agrees that these factors place many visual artists at a material disadvantage vis-à-vis other authors, and therefore the Office supports congressional consideration of a resale royalty right, or droit de suite, which would give artists a percentage of the amount paid for a work each time it is resold by another party.”

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Anatomy of an Artist Invoice

Posted on June 16, 2013November 18, 2015 by Richard Lehun

For many emerging artists, the invoicing of direct or studio sales is a hastily filled out form (if there is any invoice at all). This is not as good an idea as it seems. In the absence of a more formalized sales contract, the invoice can define many important obligations between the buyer and the artist. This text will review a few of the critical terms that a relatively simple invoice can contain.

When does the Buyer actually own the Work?

The artist invoice can make clear that the buyer does not actually own the artwork until the artist is fully paid. An invoice containing words to the effect that, “title to the artworks remains in the artist until the artist has received the full amount owing for the artworks,” can make recovery of the work in the case of non-payment significantly easier.

Title is an important legal category. It means that a court can, on the face of it, recognize that someone has a collection of exclusive rights as against other interests. Someone who has retained or acquired legal title has a court enforceable right to exclusively possess, use, sell, or otherwise dispose of an artwork. If an artist retains title, but allows the buyer to possess the work until being fully paid, then the exclusive rights listed above remain with the artist.

The fact that an artist has a strong legal right does not mean that one need to go to court to enforce it. The overwhelming majority of contract disputes are settled out of court. The best way to prevent litigation (that is, the full process of having a court reach a decision on a matter) is to create and maintain clear legal distinctions around key questions. By doing so there is pressure on a non-performing party (in this case, a buyer who is not living up their side of the agreement) to respond without a court’s intervention. A letter from a lawyer demanding the full payment or return of the works has a significantly higher chance of success if an artist has retained title in the manner described on the invoice. In the case where a problem needs a court’s intervention, the issue of title will be key to an efficient and cost-effective proceeding.

Title does not mean Copyright

Even though copyright is created by law when the artwork takes on a tangible form, it is important to remind buyers that they are not acquiring rights to the creative content. Copyright is a collection of rights, including making reproductions, adapting the work, selling or assigning rights to exploit the work, or making it available to others by technological means. A buyer can enjoy the unique physical iteration of the work, and has all of the rights associated with title mentioned above, but may not appropriate the unique creative expression.

There are a number of reasons why an artist should communicate about copyright with a buyer. Copyright gives the artist the exclusive right, for example, to make use of copies of the original work for professional purposes. It is important that the buyer understand that the work is acquired subject to limitations. This effectively means that for the length of the copyright anyone must ask the artist for explicit permission to use the artwork in any way other than simply enjoying its possession. Typically this can be included in the invoice by stating that the artist reserves all rights to the artwork, and that the work may not be reproduced in any form without prior permission.

In the US, copyright is typically life of the creator plus seventy years. This means that not only does the creator have rights until the end of his or her life, but that the creator’s estate continues to have control over the works for decades. In expectation of the increasing value that the electronic reproduction of works will generate, it is important to ensure that a buyer understands what they are getting, and that the artist understands and manages the value of works created.

Let the Buyer know that Works may be needed for Future Exhibitions

Keeping a record of who buys artwork will be imperative as an artist’s career evolves. Gallerists, dealers, and museums will want to show the evolution of an artist’s work and the historical context of production. Every early work that leaves the artist’s hands is a puzzle piece that may have a lot of meaning to future professional partners. For this reason it is imperative that an artist keep records of what they have produced, but even more importantly, who the work has gone to. The invoice should contain as much unique identifying and contact information as possible.

In addition, it is valuable to signal to buyers that they take the piece subject to its use in future exhibitions. The invoice can include a term like “buyer agrees to make the artwork available upon reasonable request for exhibition at the artist’s studio, and in galleries and museums, provided that such does not incur costs for the buyer, or that any such expenses are in the name of the borrowing party.” While not a legal right that can be easily enforced against a buyer, it will put the buyer on notice that this can happen, and that they should be prepared to cooperate in good faith if they want the piece.

The Right of First Refusal

It is a longstanding practice that gallerists carefully control price increases to prevent radical shifts in the market which could be disastrous to an artist’s career. To an emerging artist, this may or may not appear relevant. However, it is important to keep a watchful eye out for the moment when it is preferable to have a collector bring works back to an artist or gallerist before disposing of them on the open market.

The right of first refusal is a contractual provision, and does not enjoy the same kind of statutory protection that copyright has. This means that a court can look at the provision and balance it along and against other contractual claims. Nonetheless, an invoice could include a provision that states that “before the artwork held by the buyer or any transferee of the buyer may be sold or otherwise transferred, the artist or his or her assignee(s) shall have a right of first refusal to purchase the artwork.”

Because it is impossible to predict when the re-sale of works could impact on an artist’s career, there is no harm in including a right of refusal provision in invoices. You can always decline to exercise the right if there is no prejudice in doing so. If a buyer feels uncertain about the clause, an artist can point out that he or she only has the right to make the first offer or match any offer that the buyer has. It will not typically prevent the buyer from selling the work.

Conclusion

These are just a few invoice elements that can have a significant impact on an evolving career. As I tried to stress in the section on title transfer, applying the law does not mean a more confrontational relationship with buyers, but rather that important questions be discussed in a transparent and timely fashion.

Alessandro Twombly enforces Fiduciary Duties against Fred Torres

Posted on June 8, 2013November 18, 2015 by admin

In a harbinger of increasing fiduciary liability, Alessandro Twombly brings the full spectrum of fiduciary claims against Fred Torres.

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Mediation Distinguished

What is Mediation and How Does It Compare with Arbitration?

How is Mediation Different from Litigation?

Litigation

Mediation

Control over the Mediation Process

Creative and Durable Solutions

Cost and Time Effectiveness

Less Stressful and Emotionally Burdensome

Confidentiality

Privacy and Opportunity to Listen and Be Heard in a Closed Setting

Preservation of Relationships

Pre-Mediation Contract

Mediation may not be appropriate in some cases

How does mediation work in practice?

Scenario of an Artist-Gallery Dispute

Hypothetical Contract Terms

First Year

Second Year

Comparing Approaches

Litigation

Meditation

Conclusion

Further Reading

Judith B. Prowda, Moderator:

Richard M. Lehun:

Nicholas O’Donnell:

Judith B. Prowda

Ed Winkleman

Elisabeth Dee

Art Fairs: An Irresistible Force in the Art World?

Tuesday May, 27th 2014

Panel Discussion and Q & A: 6.30-8PM

Wine and Cheese Reception: 8-9 PM

Sotheby’s Institute of Art, 570 Lexington Ave, New York, NY

Register here.

First, what is copyright?

How long does copyright last?

What is the public domain?

Copyright a Constitutional Right

Copyright has an Economic Purpose

Formalities

Requirements

Works Protected

Useful Articles not Protected

Ideas are not Protected

Merger Doctrine

Originality

Fixation

Bundle of Exclusive Rights

Right to Reproduce

Right to make Derivative Works

Right to Distribute

First Sale Doctrine

Right to Perform

I. New Precautions Under New York’s Amended Consignment Statute

II. Commercial Laws Protecting Reasonable Expectations of Buyers

III. Oral vs. Written Contracts

IV. Statute of Limitations for Breach of Warranty of Authenticity

V. Stolen Art

Artist Resale Rights in the US?

When does the Buyer actually own the Work?

Title does not mean Copyright

Let the Buyer know that Works may be needed for Future Exhibitions

The Right of First Refusal

Conclusion

Tuesday May, 27^th2014