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Art Law

Recent Developments in Art Litigation and Art Finance

Picasso Painting Sets Record At $179.4 Million For Artwork Sold At Auction At Christie’s

Posted in Art Valuation

As recently reported by the New York Times, the spring art auction season continues in full swing in New York this time at Christie’s where Pablo Picasso’s 1955 painting entitled “Les Femmes d’Alger (Version ‘O’)” fetched $179.4 million (including fees) at the auction house’s “Looking Forward to the Past” sale of artworks from the 20th century yesterday evening.

According to Christie’s, the winning bid surpassed the auction house’s estimate of $140 million and was the highest on record for an artwork sold at auction.  The previous record setting auction high also occurred at Christie’s and included Francis Bacon’s “Three Studies of Lucian Freud” paid by Elaine Wynn, co-founder of the Wynn casino empire, in November 2013.

Shortly after the winning bid on the Picasso, Alberto Giacometti’s iconic 1947-51 bronze sculpture entitled “L’homme au doigt (Pointing Man)” sold for $141.3 million (including fees), which represented an auction high for any sculpture.

This was the first time that two artworks with estimates of over $120 million each were offered for sale at the same auction.

Van Gogh Painting Fetches $66.3 Million At Sotheby’s Spring Auction

Posted in Art Valuation

Spring art auction season has arrived in New York this month.  Earlier this week a Vincent van Gogh painting from 1888 entitled “L’Allée des Alyscamps” was sold to a private collector from Asia for $66.3 million as reported by the Los Angeles Times.  While the sale of van Gogh’s painting depicting an outdoor scene with people and trees surpassed Sotheby’s estimate of more than $40 million, it did not break the auction record for a van Gogh painting, which was set back in 1990 when the Dutch artist’s “Portrait of Dr. Gachet” fetched $82.5 million.

Sotheby’s auction of Impressionist and Modern Art earlier this week generated a total of $368.3 million in successful bids.

This spring’s art auction season in New York will highlight some other highly coveted works, such as Alberto Giacometti’s sculpture entitled “L’Homme au doigt” (Pointing Man), which will be up for auction at Christie’s on Monday.  The iconic sculpture is estimated to sell for around $130 million.

Royal Battle Over Four Disputed Paintings Simmers in Spain

Posted in Art Museums, Art Recovery/Theft

I recently came across an interesting piece by the New York Times on a “royal battle” of sorts between the renowned Prado and a new royal museum set to open in fall 2016 that can’t quite seem to settle down over in Spain.  The new museum, the Museum of Royal Collections, is demanding that the Prado give up four paintings, two of which are the Prado’s top attractions, namely, Hieronymus Bosch’s “The Garden of Earthly Delights and Rogier van der Weyden’s 15th century depiction of the descent of Christ from the cross.

The Prado’s response to the demand was strong and clear that the new museum would not be receiving the four disputed artworks.

It has been reported that the disputed art works were taken from the royal San Lorenzo de El Escorial monastery and kept for safekeeping with the Prado by government officials nearly 80 years ago during the Spanish Civil War.  The Patrimonio Nacional, the heritage agency that acts as the administrator of all royal holdings (from antiques, artworks to palaces it has lent over the years), however, is insisting that the paintings be returned to it for the new museum.

Understandably, museums throughout Spain are keeping a close eye on the fight over ownership of the four paintings, fearful that pieces with a royal provenance among their collections could be removed next.  Of the about 1,000 works loaned to other museums by the heritage agency, several have already been recalled.  In particular, the agency’s president has signaled an interest in recalling works by such artists as El Greco, Velazquez and Goya out on loan.

Disputes between museums over ownership of art are not exactly new in Spain.  In a past high-profile case back in 2010, the Prado was unsuccessful in its attempt to reclaim Picasso’s “Guernica” from the Reina Sofia Museum in Madrid.

With deep cuts in state subsidies endured by cultural institutions throughout Spain, the heritage agency’s demand for the recall of the paintings is for financial reasons.  The Patrimonio Nacional spent about $178 million in public money on the new museum.  It is hoped that with the addition of some key attractions among its 150,000 works in the royal collection, more visitors will attend.

It appears clear that the disputed artworks belong to the agency’s royal collection as even the Prado lists them as being on “temporary loan.”  Bosch’s work described as an “ambitious symbol-laden tryptich by the Dutch medieval painter,” was acquired by King Philip II and presented to the monastery in 1593, where it hung for 340 years until it was sent to the Prado for restoration in 1933 and then put on loan for safekeeping in 1936.  As for the van der Weyden painting, Maria of Hungary acquired the work and left it to her nephew King Philip II.  The painting was given to the monastery in 1574, where it remained for 362 years until it was sent to the Prado for safekeeping in 1936.

The disputed paintings, however, remain in the Prado’s possession, which has “forcefully pressed an emotional claim” as well as its “trump card” as the most popular museum in Madrid, receiving 2.5 million visitors this past year.

If you are wondering what the royal family thinks of all this, think no more as it has wisely stayed out of the dispute.  The Spanish deputy prime minister has indicated that the dispute is over and that the paintings will stay – even if that is so, it is apparently not evident to the two “bickering institutions.”

In recent weeks, tensions surfaced again as the agency offered previews of its new museum, which is designed to blend in with the architecture of the nearby royal palace.  The latest “skirmish” took place when the Prado attempted to extend the well-received van der Weyden exhibition a month past its scheduled closing of June 28, but its request was refused.  In recent days, a number of government meetings have taken place in an effort to work out a solution, however, the Prado would not compromise.

I intend to follow this intriguing story as I am very interested in how it all turns out between the two institutions.

The Future of 1031 Exchanges: A Continued Tax Break For Art Investors?

Posted in Art Finance

The International New York Times recently reported on a “little-known” provision in the federal tax code, referred to as a “like-kind” or 1031 exchange (named after the section of the tax code that allows it), which has become an increasingly used tactic among high-end art buyers who are seeking to defer or sometimes avoid federal taxes when upgrading their art work to more elite and marketable artist names.

The exchange tactic essentially enables an investor to defer paying 28 percent capital gains tax on sales of art and other collectibles, such as stamps and coins, by applying the profits from one work toward the purchase of a similar one.  Some liken the process to a no-interest loan from the government in which the investor has access to the money saved for a period of time until the asset is sold.  Two strategies that have made the tax break an attractive tool for art investors in estate planning in which they can avoid capital gains taxes include holding the art work bought with money from a previous sale until they pass away or donating it to a museum.

The use of the tax break has significantly grown in response to soaring prices for art and the increasing number of savvy investors, often from the real estate industry or Wall Street, who tend to view paintings and sculptures as “tradable commodities[,]” according to experts.

The Obama administration has taken notice and is seeking to eliminate the tax break for exchanges of art and other collectibles, which has undoubtedly spread alarm throughout the art world.  The current administration’s focus on 1031 exchanges suggests that a sizable amount of tax revenue is at stake.

Opponents of like-kind exchanges assert that such exchanges were initially intended to avoid the penalization of tax payers whose economic position did not change when assets were exchanged.  Opponents view the exchanges as sophisticated “tax dodges” exploited by investors that were never intended to be a tax tool for affluent art buyers.

On the other hand, proponents of the exchanges say the re-channeling of profits into new investments helps the economy with the promotion of growth and job creation.  Specifically, exchanges stimulate activity for art auction houses, art galleries, and their commissions, as well as financial professionals (CPAs, etc.) and art shippers – a lot of people upstream and downstream who are ordinary working people.  Proponents assert that the 1031 exchanges are based on the principle that it is unfair to tax a “paper” gain, if an investor is simply selling an asset and is quickly reinvesting the profits into the same kind of activity.

It is estimated that the elimination of 1031 exchanges could in some situations reduce gross domestic product by about $8 billion annually, according to an Ernst & Young economic study for the Federation of Exchange Accommodators.

The use of the tax break is expected to continue to grow while the art market remains confident and steady, and where buyers purchase art as an investment, not for aesthetic pleasure, according to experts.  It will be interesting to see what the future holds for 1031 exchanges and the use of same by art investors in the next few years.

 

 

 

Jasper Johns’ Longtime Assistant Sentenced To Prison For Stealing The Celebrated Artist’s Art Work And Profiting $4M From Same

Posted in Art Recovery/Theft, Litigation Issues

In the art news this week, it was reported that celebrated artist Jasper Johns’ longtime assistant James Meyer was sentenced to 18 months of prison by a Manhattan Federal Judge on Wednesday for stealing and profiting from the sale of 37 of Johns’ art works in excess of $4 million.  Meyer was also ordered to pay $13.4 million in restitution as well as forfeit nearly $4 million to the government.

The remorseful assistant had admitted to taking 83 art works from Johns’ file drawer at the artist’s art studio in Connecticut during the period from September 2006 to February 2012.  Meyer had taken more than half of the art works to a Manhattan art gallery to sell without Johns’ knowledge, according to prosecutors.  The art works had yet to be completed by Johns, however, Meyer represented to the gallery owner that they were “finished works” and “gifts” from the artist.  Meyer even went so far as to allegedly create fictitious inventory numbers to give the appearance that the stolen art works were finished works.

The Manhattan art gallery (unidentified by prosecutors) ended up selling 37 of the paintings for nearly $10 million from which Meyer profited in excess of $4 million for his cut.  Under a plea agreement, Meyer had faced 37 to 46 months in prison, but because the Federal Judge believed Meyer to be a “good” person who was genuinely remorseful, Meyer was given a break with the 18-month sentence.

The former trusted assistant had worked for Johns for nearly 30 years from 1985 until his arrest in 2013.

 

Art Prevails Over New York’s Statutory Privacy Law

Posted in Litigation Issues

As recently reported by Artnet News, the New York State Supreme Court, Appellate Division ruled in favor of New York based fine arts photographer Arne Svenson and affirmed the Supreme Court’s decision that Svenson’s photographs of his Manhattan neighbors going about their everyday lives in their homes through open windows were protected under the First Amendment “in the form of art.”

Svenson garnered a significant amount of attention and controversy back in 2013 when his exhibition “The Neighbors” opened at a New York art gallery that was followed by legal action.  Svenson’s neighbors had learned that the photographer had been taking pictures of them inside their apartments using a telephoto lens, without their consent.

A couple of the subjects shown in the photographs originally filed a complaint in the New York Supreme Court back in May 2013 on behalf of themselves and their minor children claiming that Svenson had photographed them and their children without their consent and arguing that they were “frightened and angered by defendant’s utter disregard for their privacy and the privacy of their children,” and further that the photographs were used for commercial purposes for promotion of an exhibition where they would be available for purchase and were also available for purchase online, thereby constituting advertising and trade.

The Supreme Court ruled in Svenson’s favor in August 2013 and the plaintiffs appealed shortly thereafter in September of that year.

In upholding the lower court’s ruling, Justice Dianne T. Renwick of the Appellate Division acknowledged that the subjects in the photographs were unaware that they were being photographed and acknowledged the limitations of New York’s statutory privacy law in redressing this type of “technological home invasion and exposure of private life.”  The court found, however, that the type of “invasion of privacy” that occurred in this situation is not actionable because Svenson’s use of the images “constituted art work” and hence were not considered “use for advertising or trade purposes” under the applicable New York privacy statute.  New York’s right of privacy statute essentially prohibits the use of a person’s likeness for commercial purposes without permission.

Justice Renwick further wrote “however disturbing” Svenson’s conduct may be with the publishing of the subject photographs as works of art, “without any further action toward plaintiffs,” there was no viable claim for “violation of the statutory right to privacy.”

While the fine art photographer’s actions may be legal for now, Justice Renwick believes that legislators need to review this “troubling” issue and possibly draft legislation that prohibits it in the future.  In particular, Justice Renwick writes “many people would be rightfully offended by the intrusive manner in which the photographs were taken in this case.  However, such complaints are best addressed to the Legislature.”

Svenson’s exhibition “The Neighbors” is scheduled to open at the Museum of Contemporary Art in Denver in February 2016.

 

 

Seller Be Ware – Valuable Banksy Mural Inadvertently Sold For Only $174

Posted in Art Finance, Art Recovery/Theft, Art Valuation, Litigation Issues

A valuable Banksy mural entitled the Bomb Damage that appeared on the front door wreckage of a home that was bombed in the Gaza Strip is at the center of an ownership dispute.  According to reports, the work, which depicts Niobe, a Greek goddess who weeps for her dead offspring, was painted by Banksy during a visit the reclusive British artist/graffiti master made to the Gaza Strip in February.

Not knowing the value of Banksy’s work, Rabie Darduna, the owner of the home, now only rubble, inadvertently sold the door to Bilal Khaled for a purchase price of only $174.  It is reported that Khaled is a graffiti artist who has admitted to having knowledge of Banksy.  Upon learning of the enormous value that Banksy works bring, Darduna, the original owner, has now filed a suit against Khaled seeking the return of the work.  As a result of the suit, Palestinian officials have confiscated the door.  Both parties maintain that they are the true owner of the work.

Although details of the claims have not been reported, if contract law as it applies in the United States governs, it appears from the information available, that Darduna could argue that he is the rightful owner of the Banksy because of a unilateral mistake.  Although generally unilateral mistake is not a grounds to rescind a contract, under general principals of contract law, a contract based on unilateral mistake can be rescinded “if the other party knows or has reason to know of the unilateral mistake, and the mistake, as well as the actual intent of the parties is clearly shown….” See e.g. Lanci v. Metropolitan Ins. Co., 564 A.2d 972, 974 (Pa. Super. Ct. 1989); see also Lapio v. Robbins, 729 A.2d 1229, 1234 (Pa. Super. Ct. 1999).  Under this circumstance, “the mistaken party may void the contract if the mistake is regarding a material term or the mistaken party may enforce the contract so that the other party for whose benefit the contract was performed will not be unjustly enriched.” Lapio, 729 A.2d at 1234 (citing Lanci and Restatement (Second) of Contracts § 153).  A claim for unilateral mistake must be supported by credible evidence demonstrating the mistake and the counterparty’s knowledge.  Thus, in this case, Darduna would need to provide evidence of Khaled’s knowledge of the true value of the work.  Under the facts of this case, it appears that Darduna may also argue that he was under duress as a result of the extreme stress related to the recent attack and destruction of his home.

Perhaps a solution is a sale of the work at auction and divvying of proceeds between the two interested parties or perhaps Banksy can make another anonymous mural for Khaled. It will be interesting to see if the doctrine of unilateral mistake is applied in the same way in the Gaza Strip or if Khaled can prevail on an argument that Darduna, as seller, is responsible for doing due diligence to determine the value of the work before accepting Khaled’s offer to purchase.  To avoid these issues, sellers must know what they are selling in order to be able to evaluate whether the purchase price is fair.

Is Art Collecting Becoming Too Financialized?

Posted in Art Finance, Art Intelligence

As recently reported in the International New York Times, art financiers are among the latest specialists in recent years hoping to carve out a niche and not only survive, but thrive, on the backs of some of the world’s most affluent art collectors.   In recent years, art collectors are increasingly using their art as collateral and then reinvesting the funds in either additional art or other assets.

From the mega banks and the specialist lenders to the boutique lenders, it seems that everyone is active in art finance these days.  And for good reason.  Art finance is regarded as a wise way to use one’s capital such that by leveraging one’s art, the work can stay on the wall, while creating greater liquidity among collectors.  In particular, it has been observed by some art financiers that ultra-high-net-worth individuals are using their art to generate liquidity and often they are not using the loan to acquire additional art.

Indeed, art collecting has become increasingly financialized these past several years – a 2014 “Art & Finance Report” by Deloitte and ArtTactic revealed that 76% of surveyed art collectors acquired art and collectibles as an investment strategy in 2013, up nearly 25% from 2012.

With a rapidly expanding art market, one may ask then what is the issue?

When the primary reason for acquiring art is adding value to one’s investment portfolio, buyers seem to focus on a narrow range of established artists.  Buyers and values can significantly drop for less proven artist names.  As recently observed, the more the art market becomes financialized, the greater the risk that demand will become narrowly concentrated on a few expensive group of names, namely, Andy Warhol, Jean-Michel Basquiat, and Gerhard Richter.  Of course, artists will always “fall in and out of fashion” as driven by collectors’ specific tastes at the time.

Only time will tell if this will actually happen as the art market continues its financialization trend.

 

Update: Indictment of Freeport King Yves Bouvier

Posted in Art Valuation, Litigation Issues

Earlier this month we posted about the arrest of Yves Bouivier, the high-profile Swiss art broker who was indicted for fraud and money laundering.  Recent reports now confirm that a court has ordered a freeze of all of Bouvier’s assets and the handover of a 1951 Mark Rothko painting.  In addition, Swiss police have conducted raids on two freeports owned by Bouvier.

The freeports have come under scrutiny by regulators in recent years.  They are large, maximum security storage facilities that allow individuals to store expensive valuables while avoiding customs duty and sales tax.

Bouvier is currently being held on €10 million bail and denies all charges.

Stolen Picasso Found in NYC to be Returned to France

Posted in Art Recovery/Theft

Pablo Picasso enjoys the unfortunate distinction of being the artist with the “Most Stolen Art” in the world. Lucky for France, recently a long lost Picasso was found in NYC and is slated to be returned to the French government.

Found in a mysterious package from Belgium, labeled as a Christmas gift worth a mere 20-30£ (the equivalent of $37 USD), the work surfaced in NYC last month. The painting (c. 1911) known as “La Coiffeuse” or “The Hairdresser” was originally exhibited at the Musee National d’Art Moderne collection in Paris. After returning to France from a museum in Germany, where it was on loan, the painting eventually ended up in a storage room in Centre George Pompidou. The painting is reported to be valued well over $2.5 M, which was the painting’s value in 2001 when it went missing from the Pompidou.

Interestingly, the U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) division, which is not just border patrolling for safety concerns, assisted in the work’s recovery. Lucky for art lovers, HIS is a division that has been active in the recovery of other Picasso’s and countless other cultural treasures.