The Rise of Outsider Art

Break on Through (from the Outside):

The Rise of Outsider Art

Sotheby’s Institute of Art and Stropheus present an evening with insiders and experts on the flourishing of Outsider Art and the specific challenges of outsider artists and their immediate support circle.

Sotheby’s Institute of Art, 570 Lexington Ave, New York, NY 10022

Panelists

Andrew Edlin, CEO of the Outsider Art Fair; founder and president, Andrew Edlin Gallery
Edward M. Gómez, senior editor, Raw Vision; art critic, historian & curator of outsider art
Scott Ogden, founder and director of Shrine, a Lower East Side gallery focused on outsider art
Daniel Swanigan Snow, Brooklyn-based self-taught artist
• Dr. Richard M. Lehun, Esq., attorney focused on artist-gallerist relations, agency, and art transactions

Moderator

Judith B. Prowda, Esq., Faculty, MA Art Business, Sotheby’s Institute of Art-New York

Topics explored will include cultural relevance, critical recognition, representing outsider art/outsider artists, as well as copyright, collections management, catalogue raisonné, agency relationships, and legacy planning.

Tune into Sotheby’s Institute of Art Facebook live stream here

About Outsider Art

The term “outsider art,” which was coined in 1972 by the British art historian Roger Cardinal, is used to label a range of unusual art forms produced by self-taught art-makers who tend to be situated, either by choice or as a result of varied circumstances, on the margins of mainstream society and culture.

As a general catchall term, nowadays “outsider art” is used to refer to the related and sometimes overlapping genre categories of art brut (unique art forms created outside the academic tradition and without reference to established art history), outsider art and self-taught art (a much broader, contemporary term referring to works produced by unschooled art-makers of many kinds, including the creators of folk art and what used to be known as “naïf art”).

In recent years, increasingly, outsider artworks have been shown in major museum exhibitions and have entered notable public and private collections. Now more than 25 years old and an institution in its own right, the annual Outsider Art Fair in New York and its newer sister fair in Paris have played a large role in validating the status of self-taught artists and celebrating the diversity of their achievements.

As outsider art has gained recognition in the marketplace, legal challenges confronting outsider artists and their estates have grown in complexity to ensure that their artistic output is sustainable in the long term.

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Art Advis­ing 2.0 : Ver­tigo & Accountability – Part II


The rise of the art advi­sor tracks the glob­al­iza­tion of art busi­ness. Art advi­sors act as a bridge to new classes of col­lec­tors, but the role is often not clearly defined. Gal­lerists, deal­ers, art fairs and col­lec­tors encounter a het­ero­ge­neous pro­fes­sion.

This event, held on April 1st, 2015 at Sotheby’s Institute of Art, explores cur­rent eth­i­cal and busi­ness ques­tions that art advis­ing cre­ates and the legal oblig­a­tions that their rela­tion­ships rely on. Art Advis­ing 2.0 — Ver­tigo & Account­abil­ity is a col­lab­o­ra­tion amongst Sotheby’s Insti­tute of Art, the Asso­ci­a­tion of Pro­fes­sional Art Advi­sors, and Stro­pheus Art Law.

Moderator: , 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

Panelists:
Sean Kelly, Sean Kelly Gallery
, Attorney at Stropheus Art Law
, Executive Director The Armory Show
, Megan Fox Kelly Art Advisory

A dedicated audio recording of Noah Horowitz’s comments precedes his text. A video of Megan Fox Kelly’s PowerPoint presentation can be found in the section on her presentation below.

Part I of this event is here.


Noah_webDr. Noah Horowitz

All right, I’m scared. The obligations are really serious. I’m going to principally speak from my capacity at The Armory Show, which I think which is may be most relevant. But, just to set the stage, I think there are a few, large picture items that Judith addressed, Sean addressed a little as well as Richard, that I think are worth hitting a little off the bat.

All of this growth, the reason there are 150 plus people probably here right now in the art advisory business probably has to do with the tremendous growth of the art market in its own right, and the rampant professionalization that we’ve seen in that space over the last 20 or 30 years or so. Sean mentioned through the outset of his career, really the art market, even in the 80s and early 90s was very small. He knew most people professionally implicated. Now that’s certainly not the case.

There are good things and bad things that happen with that. I’m a proponent, and I think most people in this room probably believe we’re in a better place because of those changes. That being said, it’s brought a lot of additional variables and uncertainties into the equation.

Art advisors in the simplest sense, in my estimation, generally provide a great deal of value. Again, [art advising] is not my professional occupation. That being said, I, like many people, probably have a lot of people asking them questions about the value of artworks and how to conduct themselves in the market.

One thing that struck me from early on when I was still in London, a friend of mine who is not a collector but a guy who’s made a fair amount of money on Wall Street had bought a winter home in the Swiss Alps and there was a gallery there who was trying to sell him a Damien Hirst print. He came up to me – and the gallery had given him the print, and it was already hanging in his living room – and basically he had very proudly shared with me that they had asked 16,000 Swiss Francs for it, and he had negotiated a thousand francs off of that price, and I said, “wait a minute, let me check Artnet quickly just to see if I can help you there.” And really you could see that the artwork – it was an edition of a 150 or so – I think five or six had come up in auction in the last year. The highest price achieved was $5,000 and four others were all bought in, with estimates from $4,000 to $6,000. I told him to offer the gallery $3,000, and that they’d be lucky if he bought it for that amount. He felt bad, he offered it at $5,000, and the email, which has since been deleted from my account, which is the problem with emails these days, was one of the funniest emails I’ve ever read. He forwarded to me from the gallery owner, who just absolutely lost it, and inserted a number of fiery words, which I won’t repeat here, into their response. Suffice it to say, my friend didn’t buy the work, and was already thankful for it.

The following year he went back to – I was with him, and we were skiing, I said, “Oh, let’s check out that gallery that you were talking about, just to see” – and the gallery was closed. So, the point there is: this was just 101 checking prices on Artnet, this wasn’t doing anything like Richard was referring to. I think that if advisors can help, great, the more efficient market in that sense, then that’s a good thing. And people like this, who are essentially trying to rip people off, shouldn’t be in business, and that’s a good thing as well.

There are other good things as well that art advisors provide beyond the obvious – certainly in my capacity as a fair, or really in the most basic capacity – any effort that we can make in our business to help raise people’s education about an appreciation of artworks is fundamentally a good thing. People often wonder why artworks are worth what they are and fundamentally it’s because there’s some knowledge about them. There’s an educational and an informational structure around them that creates that value. And if art advisors, like the great dealers and scholars over time, can help provide a baseline of that knowledge, that’s fundamentally a good thing.

That being said, the whole role and scope of the business have changed immeasurably. One bit of advice that I give to any dealer that comes and shows with us at The Armory that’s not from New York or the U.S. is that you’ll probably meet more art advisors at The Armory than any other fair you go to, and that’s generally true. We have an enormous volume of advisors at the fair and for a lot of our foreign dealers – I think that 55% -60% of The Armory galleries are coming from overseas, they’ve never seen anything like this. They’re used to dealing with some advisors – a lot of collectors with museum people – but the sheer number of people that are representing other people is very overwhelming to them, and a lot of them don’t know, frankly, how to deal with that.

We commissioned Clare McAndrew, who does a report for TEFAF, to do an exhibitor survey for us this year and a VIP survey, and actually we got responses back from that today, and discovered that 15% of the VIPs at The Armory Show claim that they are art advisors or consultants, which is maybe a little bit less than I thought it could actually be. Fifty to fifty-five percent said they’re private collectors, about 20% said they were art world professionals, which is basically, other galleries, dealers, curators, etc. The third biggest category was at 15%, which was art advisors and consultants.

That being said, when I talked to our VIP team to prepare for this – and I remember this in the office, when we were doing the Show this year – the number of new VIP requests we received from art advisors this year was just through the moon. I had them pull stats, and basically I’ve been told that 50% of new VIP requests to come to The Armory this year was from art advisors and consultants. Now that is a huge number of people who are writing to our vip@thearmoryshow account, trying to get access to our fair.

From my vantage point as director of the fair, in many ways this is a great thing. We can, through a single art advisor, speak to multiple different clients. And as our industry has become globalized and become faster and more people are in more places and less people can actually come to the fairs, having a really qualified art advisor at a fair like The Armory or any fair, auction or in any gallery for that matter is a good thing, because you don’t ever quite know who they’re representing, and they can speak to a client and buy on behalf of a client or take something back in six months and you might end up selling something without a client and that’s a good thing.

The problem is that it creates a lot of question marks and inefficiencies that our staff in particular – and I’m sure it’s the same in many other galleries and auction houses – have difficulties dealing with. When people write to us and request passes, we try to ask a number of questions. Where are you based? Who are your clients? How much money do you or they spend on art etc., etc.? And we do our best to filter and provide access accordingly. That doesn’t always go to plan.

One of the things I discovered this year – I don’t even know how I discovered it, I think I was just on Facebook or something – but all of the sudden there was some art advisory firm offering up free Armory VIP tickets on Facebook and Twitter. I then put that into our VIP account and I found a long correspondence where there was a big email chain from January or February where they introduced themselves as a new art advisory firm. We were told that they were buying 5 to 7 million dollars of art for their clients, annually and they basically listed every major art fair and every major artist under the sun as who they’re buying for. And yet, there they were, hawking Armory VIP passes on Twitter.

Now I have no problem with people offering passes to qualified people, but when Sean Kelly, who exhibits with us comes up to me, “Why on the bloody earth is this student asking me – at 12:30 PM of opening day of the fair – for information about Antony Gormley or something like this for his student project, that doesn’t help me do my job, and doesn’t make him particularly happy either.

Judith: Hopefully, not one of my students. [Laughter in the audience]

Noah: I think it was. [More laughter in the audience]

And I think that there’s a large misperception about why fairs ask these kinds questions, I’m not sure why the other auction houses and others ask these questions to is: Who are your representing? What are their names? Yadda, yadda, yadda. And I can totally appreciate and certainly understand certain aspects around client confidentiality and not wanting to show your hand. At the same time, unlike auction houses, we don’t take a commission on sales. We’re just a facilitator between buyer and seller, and the more information we have about who you’re bringing to the fair, the better job we can do in terms of filtering and tiering access to art dealers. Because what we want to create is a steady flow of qualified clients coming into the fair throughout the course of the week. And we don’t know that it becomes convoluted. People can get upset with us because they have too many students coming in when they should be dealing with high level advisors and high level museum trustee collectors.

So, that’s just something I’d say on that.

I think the other side of that as well is that I’m a believer fundamentally in business in life, that the more information you can put out there the better it is for everybody. I think that advisors are always worried somehow we’ll get a client’s information and then in the following year, they’ll be in our VIP system and they’ll get a VIP pass directly and they won’t have to mediate through an advisor. At some level of course, that’s true. But at the margin I think that the more collectors feel, or anybody feels in terms of going to galleries and going to fairs, the more likely they are to purchase work and be an active and serious participant. So, I don’t believe that advisors should be screening or as controlling. Maybe their business can benefit in the long term by having more actively engaged clients who are more comfortable going to fair and galleries generally.

Big picture thinking, I think that one thing that’s a concern, certainly to me wearing a bit more of an academic hat, is a lot of criticism around the fact that with this huge influx and increase in art advisors representing collectors nowadays there’s a risk, perhaps, that collectors are not thinking for themselves as much, or in fact, that collections are getting built in a like-for-like fashion.

As a result, you have certain people with certain kinds of tastes who are building collections and advising on behalf of collectors and somehow, things are starting to look the same. I think that’s a legitimate risk. I don’t think that it’s attributable uniquely to the advisor business, but it is something in our general business that needs to be addressed. And so I just sort of throw that out there, maybe that’s an interesting talking point.

Generally, what I’d say as a final note is any effort to create a more professionalized association for or professional networks for advisors, which is something that Megan will address, is a good thing for the market. Speaking on behalf of the fair, the more associations that we can liaise with and coordinate with in lieu of one by one basis individual collectors is certainly a beneficial thing, and I’d like to think there will be more such developments to come. And this is something more for the future, as the business increases; we’ll see more associations that are working in a more professional capacity. And that, by the way, is a good thing.

So I think I will stop there, and I think we will have fun conversations after.


Megan Fox Kelly6168

Megan Fox Kelly

The Association of Professional Art Advisors (APAA) is a not-for-profit organization comprised of leading independent art advisors, curators and corporate art managers. The association set standards of professional practice which all of its member advisors follow. To date the APAA has more than 100 members who are advisors and curators, building and maintaining art collections for both private collectors and major corporations. As advisors, we are objective advocates who work solely for our clients, and unlike art dealers, do not maintain inventories for sale nor represent artists. APAA members are active in all sectors of the art market, purchasing art for their clients at galleries, auction houses, fairs and online. Our organization conducts periodic member surveys which assess the total dollar values members spend on behalf of their clients in various sectors of marketplace.

Below is a breakdown of the APAA members purchasing activity in the fine art market from 2010-2013.

• 36% of APAA’s members purchased nearly $640 million in works of art at galleries between 2010 – 2103 — an 80% increase over the amount purchased between 2005 through 2010.

• 33% of APAA’s membership purchased nearly $194 million worth of art at fairs between 2010 and 2013.

• 18% of APAA’s members purchased nearly $192 million worth of art at auction – a 4% drop from 2010.

• 8% of APAA’s members purchased $829,000 worth of art on-line in 2013 –a first time measurement.

APAA’s code of ethics is a guide for best practice and is signed by ever member on an annual basis. It is covered by several key principles:

• APAA advisors are not dealers, and as such, they do not maintain inventory for sale, accept artwork on consignment or act as private dealers in any transaction.

• APAA members maintain lawful practices, complying with state and federal laws in taxation, exercising due diligence in researching the provenance of recommended acquisitions, and refusing any requests by clients or vendors to subvert the law in any fashion.

• APAA members should not perform services that would be, or appear to be, adverse to the interests of his or her client unless those services are fully disclosed to the client and the client provides advance consent to the services in writing.

• APAA members do not accept financial compensation that creates a conflict of interest between the member and their client.

• APAA members do not solicit or accept compensation from service providers or vendors.

Advisors are not dealers, and as such, they do not own or represent inventory. While dealers advise clients and museum curators advise their patrons, they are different from professional art advisors who are hired to assist their clients (private or institutional) in building and caring for their collections, or helping them to sell their collections. An art advisor has a fiduciary duty to represent their client’s best interests at all times, not their own interest or the interests of a dealer, artist or auction house.

An advisor’s fees should be completely transparent. Fee arrangements remain at the discretion of the advisor, provided the advisor is always paid from one source, preferably their client. The advisor can be paid either salary, retainer, hourly fees, fees based on percentage of sales, or a combination of these payment methods. A good advisor will also disclose his or her fee arrangements to dealers and auction houses with whom they interact on behalf of their client. Therefore, they become a facilitator on behalf of the client and the dealer, auction house, or artist with whom they are working, rather than an obstruction.

Advisors should always maintain written agreements with their clients that outline the nature of the advisor’s work on the client’s behalf, and that contain a clear recitation of how the member will be compensated. Invoices to clients should clearly delineate the amount of compensation due to the advisor.

Furthermore, an advisor does not perform services that are averse to the interests of their client and avoids conflicts of interest, including direct and indirect financial interest in a transaction involving their client. If they find themselves in such a situation, they must disclose the conflict to the client.

An advisor is an expert in their field and does not provide advice in areas that are outside of their expertise. Instead, an advisor can bring in outside expertise to assist their clients. When completing any project for their client, an advisor’s research is careful, informed, and performed at the highest level. They must exercise due diligence in verifying the accuracy of information supplied to their clients, regarding works of art including: the date of a work, its provenance, exhibition history, and publication records. An advisor is careful to not provide services regarding stolen works of art.

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Art Advis­ing 2.0 : Ver­tigo & Accountability – Part I


The rise of the art advi­sor tracks the glob­al­iza­tion of art busi­ness. Art advi­sors act as a bridge to new classes of col­lec­tors, but the role is often not clearly defined. Gal­lerists, deal­ers, art fairs and col­lec­tors encounter a het­ero­ge­neous pro­fes­sion.

This event, held on April 1st, 2015 at Sotheby’s Institute of Art, explores cur­rent eth­i­cal and busi­ness ques­tions that art advis­ing cre­ates and the legal oblig­a­tions that their rela­tion­ships rely on. Art Advis­ing 2.0 — Ver­tigo & Account­abil­ity is a col­lab­o­ra­tion amongst Sotheby’s Insti­tute of Art, the Asso­ci­a­tion of Pro­fes­sional Art Advi­sors, and Stro­pheus Art Law.

Moderator: , 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

Panelists:
Sean Kelly, Sean Kelly Gallery
, Attorney at Stropheus Art Law
, Executive Director The Armory Show
, Megan Fox Kelly Art Advisory

A dedicated audio recording of Sean Kelly’s comments precedes his text. A video of Richard Lehun’s PowerPoint presentation can be found in the section on his presentation below. Due to a technical malfunction, we regret that a secondary audio source was used for the first eight minutes of the recording.


New York Art Law Attorney Judith B. Prowda

Judith B. Prowda

Welcome everyone to this evening’s program, Art Advising 2.0. Vertigo and Accountability. I’m Judith Prowda, and I welcome you here this evening to this panel discussion and dialogue. I thank our illustrious panel for participating, and special gratitude to Richard Lehun for planning this panel with me.

Art advising is not a recent phenomenon. The existence of the art advisor dates back at least to the 17th century. Diego Velázquez traveled to Italy in order to acquire works by Titian, Tintoretto and Veronese for King Philip VI of Spain. New and vastly rich industrialists in the 19th century, perhaps more competent in their business acumen than art expertise, also relied on intermediaries, sometimes artists, to cultivate their tastes. Alfred Barnes, for example, depended on William Glackens to educate him and to build his fabled collection. See Georgina Adam, Big Bucks: The Explosion of the Art Market in the 21st Century 93 (Lund Humphries 2015).

In the last century, prominent dealers such as Lord Duveen of Millbank, known in this day as “Napoleon of the art dealers,” guided an impressive roster of clients – Morgan, Frick, Mellon, Altman, Huntington, just to name a few – in forming their prestigious collections. A consummate salesman, Lord Duveen not only ferreted out the most exquisite masterpieces in all of Europe, but he also designed his clients’ homes, consulted with them on their dinner parties, and even kept his vault stocked with their favorite cigars. He was also known to rhapsodize about the paintings his clients acquired long after the deal. As Andrew Mellon remarked, “My pictures never looked so marvelous as when you are here!” See Michael Peppiatt, ‘Duveen’: The Art of the Deal, NYT, Sept. 19, 2004.

There has been a radical shift in the art world in recent years. According to the just released TEFAF report 2015, the global art market topped 51 billion Euros in 2014, an increase of 7% year on year, and its highest recorded level. The sheer magnitude of the global market has made it all but impossible to keep pace. With over 180 major art fairs with an international element, not to mention hundreds of smaller regional and local fairs, plus biennials, triennials and auctions crowding the art world calendar. And this does not include online art sales, which according to the online TEFAF Art Market Report is conservatively estimated to have reached 3.3 billion Euros, or around 6% of worldwide art and antique sales by value. See TEFAF Art Market Report 2015, prepared by Dr. Clare McAndrew. It is a full job simply to navigate the boom. Hence the rise of the art advisor.

Today, art advisors are valued as much for their access to galleries and high quality pieces, as for their advice on what works to acquire. See Mary Rozell, The Art Collector’s Handbook 30-31 (Lund Humphries 2014); Mia Fineman, Art Advisers, NYT Oct. 15, 2006. This is especially so in the primary market, which is largely based on trusted relationships. Top tier galleries with waiting lists for their star artists can be as highly selective as they choose. A trusted advisor can assure a dealer that their prized inventory will be placed in the right collection (the operative word being placed). And that their client will not flip the work either at auction or through another gallery.

At the same time, a well-connected advisor can act as gatekeeper and bridge for dealers to new classes of collectors, who may have money but not necessarily the knowledge of time to build a collection. See Daniel Grant, When Art Buyers Need Help; High-End Purchasers May Have More Money Than Knowledge, WSJ, Feb 2, 2015. For all these reasons, art advisors wield enormous power in the market, and the profession is growing.

There is no professional certification to become an advisor. So reputation is key, as everywhere in the art world. Art advisors practice in different ways. Some dealers are advisors and some banks have specialists who advise their collector clients. The profession is self-regulating.

The Association of Professional Art Advisors (APAA) is the main trade association. Membership is by invitation only. The APAA has its own Code of Ethics. Art advisors who are also dealers are not eligible for membership in the APAA due to potential conflicts of interest.

As in all business relationships in the art world, transparency is key. The best advisors, like the best dealers, desire to establish long-term relationships with their clients, not one-off deals to make a profit.

Who are the art advisors? What qualification does one need to become an art advisor? Who hires art advisors? People who wish to buy for personal enjoyment or to build a serious collection for their future legacy? How does one go about finding the right advisor? And how do advisors work? How are they compensated? Where do they look for art – galleries, art fairs, auctions, online, directly from artists’ studios?

Along with the rise of the art advisor is the emergence of complex legal and ethical issues. For example, and these are but a few: What are the pros and cons of using an art advisor? Shouldn’t people trust their own taste in acquiring art? Is art advising more common in the United States than in other parts of the world? How is art advising understood abroad? How are art advisors paid? Percentage of the purchase price? Retainer? Hourly fee? Isn’t there a potential conflict of interest if an advisor is paid a percentage of the purchase price when they’re negotiating the price on behalf of a collector?

Suppose an advisor has more than one client who wants to purchase a certain artist or a specific work. Who gets it? If an advisor is a dealer, wouldn’t there be a tendency to sell from their own inventory rather than putting their client’s interest first? What about double dipping? That occurs when an art advisor receives a fee both from the collector and from the gallery. Under what circumstances, if any, is this okay, legally and ethically? These are just some of the important questions we will explore this evening.

I’m grateful to my employer, Sotheby’s Institute of Art, for graciously hosting this event, as so many other events I’ve organized in this beautiful space, which is my second home.

This program is part of an initiative to create dialogue amongst lawyers, artists, emerging and established art professionals working in the primary and secondary market. In the past year and a half we have held programs on Gallery Ethics and The Rise of Art Fairs, both in collaboration with the New York State Bar Association Entertainment, Arts and Sports Law Section, of which I am Past Chair.

We have posted an audio podcast and transcript of these programs on the Stropheus Art Law website and will do the same for tonight’s program. Our next event will be on the topic of the online art market.

To explore the complexities on the role of art advisor, let’s begin with the perception of a gallerist, Sean Kelly. We will follow with attorney Richard Lehun, who will explore the nexus between legal and ethical questions. Noah Horowitz will examine how art advising has impacted the global art business and the art fairs in particular. Megan Fox-Kelly will end by exploring legal best practices for art advisors and the role of the Association of Professional Art Advisors.

Thank you very much. Please join me in welcoming Sean Kelly.


New York Gallerist, Sean Kelly

Sean Kelly

Good evening and thank you all for joining us this evening. I would like to start out by thanking Sotheby’s Institute, Judith and Richard, for their invitation, and express how happy I am to be on such an illustrious panel with Megan and Noah. I want to point out a couple of facts before I start. This evening is being bracketed by two Kelly’s so it’s going to be good night for them. And we are going to conduct the rest of the meeting downstairs in the bar afterwards.

I have a confession to make, I actually know nothing about this topic whatsoever, and the only reason I’m here is that I got the invitation, I noticed the date was April’s Fool’s Day, and I assumed that it was a joke, so I said “Yes.” Now, I found that it wasn’t, so I’ve done some research. So, I’m going to through some stuff out there just to get us going, and let the experts really attack the topic.

I wanted to pick up on a few things that Judith had mentioned, and there’s one particular theme that I want to illustrate for you more broadly. I don’t want to talk too much about the specifics of art advising or art consulting, I think Megan’s going to talk to that point more fully.

I wanted to start out by picking up from something that Judith said, acknowledging the very important role of artists historically in this field. One of the more maverick and interesting artists of the 20th century, Marcel Duchamp, actually was working as an art consultant and he was the person who brought Brâncuși to America and sold most of the Brâncuși’s in America that you see. Certainly the ones in Philadelphia – the bulk of his own work in that great museum [Philadelphia Museum of Art]. He was also instrumental in the Société Anonyme which ended up becoming the Museum of Modern Art. So, Duchamp’s role as an art advisor, and that of many other artists, has been very important in shaping our culture profoundly.

More recently, those of you who knew Herb and Dorothy Vogel and the incredible collection that they formed, or have the pleasure to be invited to their very small apartment to see their very large collection, were probably regaled with the fact that when they started out, the person who took them around the galleries and introduced them to the artists was Richard Tuttle. So, they too were being guided by an artist.

So, there’s a very long and important tradition that establishes the role of both professional and more informal art advising. The Vogel collection of course ended up going to the National Gallery of Art [in Washington, D.C.].

The historical role of dealers, curators, museums and advisors as taste makers is well-documented and one of the things that struck me when I was thinking about this topic was that when I started working as a gallerist – and I want to make a distinction between being a dealer and a gallerist, but that is not the topic of the evening’s conversation, but I think it’s an important distinction – when I first started working as a gallerist, some 25 years ago, I knew most of the significant players in this field, in my world, having come from being a museum person. And at that point the art world was rather like a country stream. It’s now something more akin to the Rio or the Nile, and it is a raging torrent. And there are now approximately 500, depending on whose advice you take from this, 500 to 800 galleries just in New York City alone. So it’s an enormous amount of professionals selling art, an enormous amount of art students leaving art schools every year, an enormous amount of everything to service that market.

Judith pointed out that the global art market last year is estimated at 51 billion Euros in 2014, there are about 180 art fairs around the world, there are biennials, there are triennials, there are auction houses.

One of the major points I want to make about this – and I will come back around to the art consulting and art advising – is that digital markets are in decline. Last year, the top 10 Hollywood movies grossed $2.5 billion. When you think about that in contrast to the amount of money passing through the art world, it is fairly insignificant. So, Hollywood is in decline, the music business is in decline, why is the art world in ascendency? It’s because we’re an analog business, they’re digital businesses, and we still control our product, to put it bluntly. And most other people can no longer do that in a global market and we are existing in a global market. So we are in a happy position of being in a growing market when many other arts producers and content providers are in a diminishing market. And I think that’s going to be a key issue in talking about these topics as we come back around.

We exist in an increasingly valuable and increasingly complex environment, which is populated by hundreds of thousands of art professionals that simply didn’t exist three decades ago. They weren’t there; they are now. The rise of the professional art advisor and consultant and dealer for that matter – we are all self-regulated – there are no regulations that exist for us outside our own professional organizations, whether it’s the APAA or the Art Dealers Association of America (ADAA) – which I sat on the Board of until recently.

There’s a high degree of moral responsibility because we’re self- regulated, which leads to, amongst our less scrupulous colleagues – and there are less scrupulous colleagues in all walks of life – to potential conflicts of interests. It means that we have to address issues of lack of clarity and transparency in our business. It means we are very reliant upon trust and knowledge and personal relationships, and we’re still in the rather archaic environment of doing business by a handshake and relying on principles and morals when many of our colleagues in all walks of life are heavily regulated.

One could conjecture in that environment – and I’m giving just a very brief view of it – that it would be good to have a road map or a GPS system for an increasingly complex world. I think that one would be encouraged to think about good art advisors, and there are many, as being your GPS system or your road map – or a bridge between the work, your artist, the dealer and your wall.

I’d like to stress that like anything else, there are good and bad art advisors, just as there are good and bad members of every community. Those who work in their client’s best interest are really invaluable, not only to their clients, but to us as gallerists. They are an invaluable link for us in building professionalism in an increasingly plural, complicated and increasingly vast market, frankly.

Part of the reason I was interested in participating on this panel this evening, was to be able to listen to my colleagues talk about and explore the specific role of art advisors, and their responsibilities in light of that world, and in light of the world that we need to navigate in. And of course to really talk with the audience, rather than at the audience, and answer questions from the audience – and at least be able to communicate with the audience – about all of our experiences in dealing with situations that art advisors have been involved in, certainly in the last 25 years that I’ve been a gallerist.

Those are the issues I’d like to raise, and I’d like us to think about as we listen to the rest of the panel and take questions and attempt to answer them for you. Thank you.


 

New York Art Law Attorney Richard LehunRichard M. Lehun

My presentation today is going to try to highlight some of the often-misunderstood issues regarding art advising and the status of being an agent. I’m also going to introduce the concept of fiduciary obligations via agency for art advisors.

Many of you may not be that familiar with the concept of fiduciary obligations, but it is a fact that all who are engaged in art advising are actually de facto subject to them, to the extent that you are acting as an agent of a client. This will give us an opportunity to run through some of the considerations that are actually structuring and framing your practice, even if they may be legal, and somewhat removed from everyday understanding.

Agency relationships are at the heart of the art world. Notable examples of agency relationships are in the representation of artists by galleries, the representation of consignors by the auction houses, and the third most prevalent form of agency, which is our topic tonight, the relationship between the art advisor and the buyer.

The single most important thing for art advisors, collectors and gallerists to understand is when advisors are acting as an agent they are legally obligated to be their client’s fiduciaries. Whether it is in a contract or not, whether in contemplation of the parties or not, or no one has raised the issue, the law imposes those obligations. We’ll get into them in a moment to understand more of what that means, but that’s the first take home message. Whether one is aware of them or not, they are simply de facto operative before a court and in law.

Fiduciary obligations order unique and valuable social relationships and are found in many settings where trust is critical. They’re found in doctor/patient relationships, lawyer/client relationships, amongst partners and in corporate governance. Fiduciary duties are imposed by society to balance power differentials. Society has legal structures that anticipate a situation where an advisor has superior knowledge, superior access to information, and may be able to make decisions in their own judgment for a client. A client doesn’t have access to the same type of empowerment, and the law has regimes to increase the security of the dependent party, of the vulnerable party.

Relationships of trust in the art community are inseparable from fiduciary obligations. Now, we have to pause for a moment and think very clearly about what is special about this fact. When fiduciary obligations are active – and they’re active by law – they’re not active by choosing them or not choosing them; they’re simply there. They change the nature of the obligations that people owe to each other in very unexpected and dramatic ways. Instead of being equal parties to a contract, fiduciary obligations create two distinct roles: the fiduciary, that is, the person who has power over another (the art advisor) and the entrustor or principal (the buyer).

It is central to understand that even if you come together under a contract – that is, an agreement that is to benefit each party – when fiduciary duties are present, they can trump any agreement.

I’ve stressed it, but I’ll stress it again, because it’s one of the core factors that gives fiduciary obligations the scope and breadth of their impact – fiduciary obligations are made by judges and courts. By default, fiduciary obligations trump contracts and other non-legal binding agreements. Fiduciary agreements can also be found between an art advisor and client even if both have explicitly disclaimed them. The court may step into a transaction, into a contractual situation, and say the contract between an art advisor and a client is unconscionable, it simply doesn’t have validity because it injures the basic right of a client to certain fundamental and legal norms. It’s important to understand that the courts determine when these fiduciary duties exist and determine their breadth and depth.

As a fiduciary, an art advisor must be loyal – in a moment we’ll get into exactly what that means, but we have to concentrate on the top level concepts first. An art advisor must be free of conflict of interest. Secondly, not only does a law impose this duty of loyalty, it also understands that this duty of loyalty has to be tempered by circumstances, which means that a court can step in and say that an art advisor has not exercised due care. This means that an art advisor has to be prudent in the eyes of the court.

Being prudent means being vigilant – independently vigilant – about conflicts of interest and transparency. Waiting for a client to pose questions is no defense against potential breach of these fiduciary obligations. This is independent of whether a client understands these obligations, is aware of them, demands them, or not. The onus is on the art advisor as the fiduciary to understand these concepts, and legally these rights belong to them even if the client is unaware of them.

Now that we’ve covered briefly the advisor as an agent and fiduciary, let us turn to the devil in the detail. What impact does this have on art advisors in their day-to-day practice?

When an art advisor is in an agency relationship with a client they must represent only that client’s interests. An art advisor cannot pursue any other interest whatsoever by law, and is under a complete obligation to maintain transparency. The client is not obligated to ask for this, or to provide for this, or even to know this. The law imposes this as a default, no matter what an art advisor thinks, has done, or practiced to date. And there is no easy legal argument that can be brought if there is a difficult situation with a client to defend the fact of not having maintained that loyalty.

It’s not a contractual situation, where the advisor can say: “well the client didn’t pay me, therefore I breached confidentiality or I breached conflict of interest provisions.” That’s irrelevant before the law. Because the fiduciary obligations trump whatever contractual issues are at hand, and ignorance is no defense, the advisor is obligated to be professional. The operative assumption by the law is that the client is vulnerable, and it is all but impossible to reverse or change that legal frame.

A key aspect of the fiduciary obligation of an art advisor is the exclusion of third parties and third party interests. The law imposes a fiduciary duty on the art advisor not to do or agree to do anything that would benefit anyone else other than their client. An art advisor cannot generate or intend to generate any profit, any benefit, for anyone but that client without disclosure or agreement on the part of the client.

Excluded third parties that can receive no legal benefit from the actions of an art advisor without full disclosure and agreement on the part of the client include: artists, gallerists, other collectors other clients, other art advisors, museums, framers, art handlers, and other service providers, etc.

The client – again, to stress this important dimension – is not obligated to ask for this, to ask for the exclusion of this. All art advisors are obligated to understand this and practice this by law.

A further deep responsibility of an art advisor as an agent and a fiduciary, is to have no undisclosed profits. In fact, the law mandates that art advisors are obligated to turn over any undisclosed profits. Every undisclosed profit an art advisor makes is automatically owed by law to the client.

Again, the client is not obligated to ask for this, not obligated to enforce this, nor make this an explicit provision of their relationship with the art advisor. If the matter ends up in court, an art advisor’s default fiduciary obligation will force full disclosure and the disgorging of all undisclosed profits.

The exposure to this liability lasts years after the transaction. Therefore, years after a transaction, if for whatever reason a client is not satisfied or has the intuition that there was some conflict of interest or some breach of trust in a transaction, that client can go to a court and force full disclosure of all people connected to a transaction and the disgorging of any undisclosed profits. Even if they were unrelated, and even if the client benefitted.

This is one of the curious things about fiduciary obligations. Even if an art advisor argues, “Well, if I give that hidden advantage to somebody, it will close the deal, my client will be happy, they’ll get the work that they want, but I’m not going to disclose this, because it would reveal to much information, or potentially compromise someone else’s interest.” That is no defense because of the legally imposed obligation of the singular loyalty to the client.

Even if a client agrees to allow an art advisor to generate a benefit for someone other than the client. For example, you (the art advisor) come clean or you actually included a high level of detail in your discussions with your client about how many other people are involved in the deal, what possible benefit that could accrue to them – even there, you don’t necessarily have a defense, because the law imposes an additional burden. You must have acted fairly from the perspective of an independent legal review, regarding the disclosure to the client of the existence of any potential actors who are gaining a benefit, and all other relevant information so the client can make an informed decision.

Even if everything looks great, and everyone is in agreement in the moment, a court can reverse everything and take away any benefit that has accrued to the art advisor and return it to the client, even years after the fact, in cases where the court does not agree with advisor’s and the client’s understanding of fairness. Counter-intuitively, the court may not necessarily take away any benefit received by the client and return it to the art advisor.

Fiduciary obligations take you off the rails of contract. All art advisors are fiduciaries when they’re agents of their clients. This is independent of whether you have a contract or not. So, an art advisor who breaches fiduciary obligations is liable for any unfairness or any lack of transparency, well after the transaction is over.

In closing, I want to note that fiduciary obligations on art advisors are to balance what are called “agency costs.” Agency costs arise when the art advisor or agent takes discretionary but imperfectly observable actions that impact the client.

The fact of operating within the confines of typical art world discretion subjects the art advisor to moral hazards and conflicts of interest, and fiduciary duties are precisely there to address wrongdoing, if it becomes manifest, or if there’s an intuition on the part of a client that it could be present.

In sum, despite not being well-known, fiduciary obligations and the agency relationship are at the core of art advising. In fact, the art advising profession is defined by them, whether art advisors are familiar with this fact or not. The vast increase in the role of art advising means that many people interacting with the profession are doing so without understanding how exposed they are. We hope, with this panel, that we can increase awareness and foster dialogue around this important issue.

I thank you for your attention, and I look forward to your questions later on.

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Judith Prowda on the Artist-Dealer Relationship


Redacted excerpt from ‘s forthcoming book, “Visual Arts and the Law: A Handbook for Professionals” with permission of the publisher Lund Humphries

Artist–Dealer Agreements

Artist–dealer representation agreements are sometimes confused with simple consignment agreements. Each form creates different legal obligations. A consignment agreement ordinarily addresses particular works for a limited transaction (for example, a specific gallery exhibition), whereas an artist–dealer agreement usually includes general provisions that pertain to consigned works and a separate consignment agreement or rider identifying specific works. Thus, an artist–dealer representation agreement is more comprehensive than a simple consignment agreement, and tends to establish the terms and protocols of the business arrangement.

The Dealer’s Fiduciary Duty to the Artist

Whether the parties enter into a simple consignment agreement or an artist–dealer representation agreement, the arrangement involves the entrustment of works by the artist to the dealer, who acts as the artist’s legal agent. The law of agency governs this relationship. As the artist’s agent, the dealer is considered a fiduciary acting on behalf of the artist, who is the principal. Therefore, the dealer is required to act only in the interest of the artist and to forego all personal advantage aside from just compensation. The dealer also owes the artist a duty of loyalty and is obligated to avoid conflicts of interest.

Fiduciary relationships are common in the art market. By law, a fiduciary acts on behalf of the principal. Similar to the dealer, who acts as a fiduciary to an artist he represents, auction houses are fiduciaries to their consignors. Museum directors and trustees act as fiduciaries to their institutions.

Specifically, the law of agency, which governs the fiduciary relationship, requires the dealer to: (i) care for and manage the consigned property prudently; (ii) deal fairly and honestly; (iii) account periodically to the artist as to the dispositions of the property; and (iv) disclose all relevant information to the artist.

Typically, the artist retains title to the work while it is on consignment with the dealer. The work is considered trust property and the proceeds of the sale are considered trust funds belonging to the artist, and must be kept in a separate account. Dealers do not have discretion to use those proceeds for their own purposes, such as, for example, to pay a gallery’s operating expenses. Once a sale is consummated, the dealer will pay the artist an agreed-upon percentage of the sale price and keep the remainder as a commission. Depending on the nature of the agreement with the artist, a dealer may pay the artist advances against future sales.

The dealer’s legal status as fiduciary means that he may not avail himself of any advantage at the expense of the artist, or engage in selfdealing, such as purchasing the artwork for himself, without the consent of the artist. For example, if a dealer purchases a work outright from an artist, without disclosing that he had previously agreed to resell the work to a third-party, the dealer would be in breach of his fiduciary duty and could be liable to the artist for damages resulting from that breach. In contrast, if the dealer is not the artist’s agent and buys work outright from the artist, there is no fiduciary relationship, and hence no breach. However, a dealer who knowingly defrauds an artist could be held criminally liable.
[…]

Artist–Dealer Legislation

The majority of states in the US, as well as the District of Columbia, have passed legislation applicable to the consignment of artworks to dealers by artists, their heirs, and their personal representatives. New York was the first state to enact an art consignment statute, the New York Arts and Cultural Affairs Law (NYACAL), in 1966. In 1975, California followed, using New York’s statute as a model. The purpose behind these laws is to protect artists from the misappropriation of consigned property or sales proceeds. In addition, the law shields artists from unscrupulous dealers who attempt to abdicate their fiduciary responsibilities to the artist by using contractual waivers and disguised purchase agreements that render the relationship one of debtor and creditor. Since criminal intent is difficult to prove, most artists resort to civil proceedings. These statutes apply only to artists who consign their works to dealers, not to collector-consignors in the secondary (resale) market.

These consignment laws impose upon dealers the highest level of fiduciary care under a trusteeship established by operation of law, which covers the artwork and sometimes the sales proceeds held by the dealer in trust for the artist. Thus, a dealer may be strictly liable (that is, regardless of negligence or intent to harm) based on an absolute duty owed to the artist, whether the dealer purchased works outright or sold the works. In either scenario, the dealer does not have the right to his commission until the artist is paid in full for the agreed-upon percentage of the sale. Some states allow the artist to waive such provisions in writing—for example, by permitting installment payments to be divided equally between the dealer and artist. New York permits a limited waiver, excluding the first $2,500 of proceeds received in any 12-month period, starting with the date of the waiver. Other states, such as California, nullify any attempt at a waiver. Therefore, prudent practice dictates that a dealer segregate the artist’s share of the sales proceeds and create a trust account separate from the dealer’s operating account. In 2012, New York Governor Andrew M. Cuomo signed into law a long-awaited amendment to the NYACAL. The amendments sought to strengthen the existing trust property and trust fund provisions of Articles 11 and 12 of the NYACAL and prevent unintended interpretations from interfering with the purpose of these Articles. Effective November 6, 2012, the consignee art merchant became subject to significant new duties and liabilities. Galleries that disregard their obligations under the statute may now be criminally sanctioned, and may be required to pay attorneys’ fees to artists in civil suits.
[…]

Undoubtedly, the most critical aspect of the amended statute is that it explicitly states that the artwork and proceeds are considered property held in a statutory trust and are not, and will not become, the property of the art merchant or the art merchant’s bankruptcy estate. The amended statute also includes a provision specifying that the trust property and trust funds shall not be subordinated to any claim, lien (that is, a legal right or interest a creditor may have in the property), or security interest “of the consignee’s creditors.”

Accordingly, if the gallery consignee is insolvent and sells an artist’s work, neither the gallery nor the gallery’s creditors can legally touch the artist’s share of sales proceeds, which are held in a trust for the artist. Both the consigned artwork and proceeds held in the trust are beyond the reach of the gallery and the gallery’s creditors. New York’s amended artist consignment protects artists by making it difficult to waive their rights under the statute prospectively, and fortifies the law’s provisions on trust property by including civil enforcement and criminal penalty provisions. Furthermore, the amendments clarify the dealer’s fiduciary obligations to the artist and increase the artist’s awareness of her rights. Finally, the amended statute’s Section 3 further specifies that an artist may seek injunctive relief, recover actual damages and reasonable attorneys’ fees if the artist is successful in an action against the gallery for breach of fiduciary duty.

© Judith Prowda 2013

Artist-Dealer Excerpt

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