Art Law Blog : New York Art Law Lawyer & Attorney : Fox Rothschild Law Firm : Theft, Intellectual Property, Institutional Negotiation : Manhattan, New York City

Sotheby’s and Christie’s are set to begin the New York Fall auction season with their Impressionist and Modern sales. 

The current issues of Art and Auction discusses some of the highlights in this preview. Among them, Christie’s will feature sculptures by artists such as Degas and Brancusi estimated at $25-35 million and $8-10 million respectively. They will also present two Picasso paintings, both estimated at $12-18 million, and works by Ernst, Delvaux, Wasserman and Matisse, to name a few of their heavy-hitters. 

Sotheby’s “has Impressionist gems as well” such as Monet’s Antibes seascape, estimated at $5-7 million, as well as works by Caillebotte and Magritte. Works by Klimt and Picasso are at the top of their sale, both with estimates around $25 million. 

[Nicole Dornbusch assisted in drafting this entry].

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This article describes the success of Italian art at Sotheby’s this month – the auction house sold 39.5 million pounds worth of art at its evening auction on October 13. 

Another big ticket work by the late Lucian Freud “Boy’s Head” sold that night for 3.2 million pounds. Of 105 lots on offer at that evening's Italian and Contemporary Art sales, 23 went unsold.

[Nicole Dornbusch assisted in drafting this entry].

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In the article referenced in the last post, Michael McGinnis listed “impeccable provenance” as one of the factors causing a work to be offered for $20m to $30m. As many in the art community are already aware, any serious purchaser of art must consider the importance of a work’s provenance. 

Given the strong correlation of inscrutable provenance to value, it is interesting to note that auction houses may not provide complete information when listing provenance. A quick search on ArtNet or a comparison with available catalogue raisonnes reveal seemingly convenient omissions of passed title in works previously sold. 

For example, if you were to cross-reference Fernand Leger’s Nature Morte Sur Fond Gris (1950), you will find that while a Sotheby’s catalog from 2002 lists three previous owners, the catalogue raisonne shows an additional previous owner and a previous sale at Sotheby’s.

Auction houses have become more careful with provenance involving restitution issues.  However, auction house should be required to investigate provenance completely in all areas of sales and consignments and ask all relevant questions about provenance, particularly when dealing with important collectors and dealers, who sometimes, regrettably, submit incomplete or fabricated provenance. 

One is well-advised to contact an attorney for assistance with due diligence before purchasing a piece or to find out about available remedies if you discover that your work of art has been sold to you with an improper provenance.

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According to the Washington Post, the iconic illustration for E.B. White's classic children's story "Charlotte's Web" was estimated to sell for $30k but fetched more than five times that amount at Heritage House in Manhattan.

The work by Garth Williams, a graphite-and-ink cover illustration, drew a winning bid of more than $155,000 at auction.

According to the article, this was the first time the Williams's family had put the art up for sale.

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According to this August 4, 2010 report in the Wall Street Journal, the art market appears to be on a firm road to recovery.

As a basis for this report, among other things, the article cites to the following information:

* Christie's International PLC said it sold $2.57 billion of fine and decorative art in the first half, up 43% from a year earlier and the second-highest in the company's history.

* Christie's total includes $274.1 million in art it sold privately, up by more than a third from a year ago;

* Sotheby's said it auctioned $2.2 billion of art in the first half, more than double a year ago;

* At Christie's, overall prices were up for nearly all of the auction house's major art categories., including $853 million of Impressionist and modern art, up 37.4%; $460.7 million of postwar and contemporary art, up 139%; and $368.2 million of Asian art, up 120.6%.

These statistics do appear to show that the market has made a significant turnaround in one year.

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Fisk University in Nashville wants to sell a 50 percent share of an art collection donated to Fisk by Georgia O' Keefe in order to keep the school afloat, according to an article in Business Week.

According to the article, the contemplated sale would be for $30 million to the Crystal Bridges Museum in Bentonville, Ark. The school and the museum - founded by Wal-Mart heiress Alice Walton - would each house the collection and pay for its maintenance.

The school apparently hopes the infusion of cash will lead to more donations, and that Fisk could raise $150 million for its endowment.

The state says O'Keefe donated the prized collection for the benefit of Fisk students and local citizens, not to leverage money.

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Bonhams has auctioned off the most expensive print ever sold in the U.K. and simultaneously set a record for the second most expensive print ever sold anywhere, the Telegraph has reported.

Edward Munch's "Madonna" was sold for 1.25 million pounds despite being estimated to go for 5 to 7 hundred thousand pounds.

According to the Telegraph, Bonhams head of prints, Robert Kennan, said: ''It has been a real privilege selling such a wonderful image and it fully deserves to have achieved such a fantastic price.''

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This was a less than perfect couple of weeks for the major auction houses in London.

At Sotheby's in London, the New York Times reported,, an auction which kicked off two weeks of summer sales totaled $165.2 million but had been estimated to fetch $148.4 million to $217.5 million. Also sixteen of the 51 works did not sell.

At Christie's the night after, the Times reported, more ambitious than Sotheby’s session the day before, the auction fetched $228 million but 16 works did not sell.

The Times also reported that "[m]ore significant, Christie’s failed to squeeze extravagant prices out of its star lots, as some had hoped would be the case. "

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The New York Times recently posted a very interesting blog about the rise and fall in the value of art and whether art is a worthwhile long-term investment.  The post is here:

roomfordebate.blogs.nytimes.com/2010/05/23/can-art-be-priceless-in-rocky-times/

One of the more interesting observations is made by Donald Kuspit, a professor of art history at S.U.N.Y. at Stony Brook, who noted that certain artists are now in the cult of celebrity as much as the pantheon of great artists. 

Kuspit states:

"The name is the high-priced, desirable, one-of-a-kind commodity, not the work, which has a certain incidental relationship to it. This has to do with the celebrity culture: artists have been absorbed into its spectacle. Their creativity has been appropriated by it, making every celebrity seem like a great artist in the making, and every artist a celebrity in the making, aspiring to make spectacular art.

The cult of celebrities among artists has replaced that of heroes. As long ago as 1961, the historian Daniel Boorstin observed, “The hero was distinguished by his achievement; the celebrity by his image or trademark.” Picasso and Giacometti are avant-garde heroes to art historians; to the market they are big names, amplified by money as well as the media. It is this that gives their art surplus value well beyond its aesthetic value. "

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In a February 4, 2010 article, the New York Times reported that the record sale of the Giacometti life-size bronze figure “L’homme qui marche I” (The Striding Man I) at Sotheby's in London is a recent example of the suddenly booming art market.  Yet, as the Times states:

"Money is ready to flow as never before. But the ups and downs of the bidding pattern, not clearly connected with the intrinsic merit of the works being offered, indicate that the market remains haphazard, making reasonably accurate predictions virtually impossible. This is not going to make life easier for auction house specialists or the buyers they hope to attract. "

The article can be found here:

www.nytimes.com/2010/02/05/arts/05iht-melik5.html

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Despite recent worldwide economic turmoil, the art market reached a new high last week when  a life-size bronze sculpture depicting the figure of a man by Alberto Giacometti was sold at auction for the world record price of $104.3 million at Sotheby's in London.

The anonymous bidder apparently place the bid over the telephone and paid nearly three times the expected price.

More about the record sale can be found here:

money.cnn.com/2010/02/04/news/economy/Sothebys_Giacometti_record_auction/

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A Guest Blog By Victoria Shaw-Williamson, AAA

When choosing a “Qualified” Appraiser of Tangible Personal Property for income, estate and gift-tax purposes, a taxpayer must be in compliance of the appraisal regulations set forth by the IRS in section 170 of the Internal Revenue Code of 1986. The term “Qualified” refers to both the appraiser and the appraisal document, and is summarized in IRS publication 561, “Determining the Value of Donated Property”.   For taxpayers who wish to claim a charitable deduction on their income tax return, a “qualified appraisal” is required for tangible personal property valued over $5,000. When dealing with a taxable estate, an executor filing an estate tax return is required to obtain an appraisal a collection of objects valued over $10,000, and for any individual item valued over $3,000.

The primary purpose of these regulations is to ensure that a competent appraiser is selected to issue the appraisal, and that he or she is a disinterested party with no restrictions on their ability to render an honest opinion of value. In order to be considered disinterested, the qualified appraiser must not be the donor or the donee, nor can the appraiser be a party to the transaction where the object was originally purchased.  

For this reason, gallery owners, dealers and auction house employees, while highly competent, may not be considered “qualified appraisers” if the object in question was purchased from their gallery. An exception to this rule would be if the donor of the property donated the object within two months of its purchase from the gallery, and claims an appraised value that is no higher than the object’s purchase price.  

According to the IRS, the best way to find an appraiser of paintings, jewelry or other works of art is to contact an art historian at a local college or museum. However, professors and curators generally do not provide appraisals for works of art, and they are likely to recommend an organization such as the Appraisers Association of America. The AAA maintains an online database of members organized by area of expertise, often with links to the appraiser’s website. 

For more information:

www.irs.gov/publications/p561/index.html

www.appraisersassoc.org

Victoria Shaw-Williamson, AAA is an instructor at New York University School of Continuing and Professional Studies, where she teaches a course on personal property appraisals for the Appraisal Studies Program. Victoria is a certified member of the Appraisers Association of America, having completed her certification examination in American 18^th and 19^th century furniture.  

Please visit www.victoriashawwilliamson.com for more information regarding her firm and its services. For art-related news and information, please visit her blog at http://theartappraisalblog.blogspot.com

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The blockage discount is a legal principle for adjusting the fair market value of art when there is a significant volume of art by the same artist at issue. In re Warhol, No. 824/87, 1994 WL 245246 * 1 (Surr. Ct., N.Y. Co. 1994).  The In re Warhol court summarized a blockage discount as follows: If an immediate sale of a block of art would depress the market, the value of the block cannot be determined by totaling the fair market value of its individual components as of a specific date. Instead, a percentage discount must be applied, based upon: (i) the nature and number of artworks, (ii) the artist's marketability, (iii) the stability or permanence of the artist's reputation, (iv) the likelihood of appreciation or risk of depreciation in the art market and the artist's work, and (v) how long it would take for the various markets to absorb all of the works comprising the block.

The In re Warhol court applied the blockage discount to the 4,118 paintings; 5,103 drawings; 19,086 prints; and 66,512 photographs at issue. Other courts applying New York law have used the blockage discount for as few as 400 works. See Grosz v. Serge Sabarsky, Inc., 24 A.D.3d 264, 806 N.Y.S.2d 498, 500 (1st Dep't 2005).

In Grosz v. Serge Sabarsky, Inc., 24 A.D.3d 264, 806 N.Y.S.2d 498 (1st Dep't 2005), the Appellate Division, First Department confirmed the consistent use of the blockage discount principle under New York law. However, the Grosz court questioned whether it was appropriate to apply the discount when only 90 artworks were at issue. The court therefore remanded the case to the trial court for a hearing on this issue.

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Many investors believe (or want to believe) that art remains one of the most stable and wise investments that one blessed with enough capital might indulge. Art investment funds often advertise that, whereas the price of stocks may fall sharply in one trading day, art may provide a safe harbor for those who play the long game -- particularly for works by old masters.

Boiled down to their essence, art funds are investment vehicles that are in many ways like hedge funds and private equity funds, but specialize in art and seek to maximize the rate of return on works in their collection. (From time to time, this blog will chronicle issues germane to those who invest in or manage such funds.)

Of course, such art investment funds have not been immune from the so-called Great Recession. Indeed, Bloomberg.com recently reported that Christie’s recently dropped its plans to start a an art-investment fund and a lending division, and that at least seven employees working on Christie’s financial projects have been fired or have left the London-based auction house since December, moves which augur poorly for the immediate future of the art lending business. (The article can be found in its entirety here.

The article also points out that the art market as whole continues to look -- to put it mildly -- weak. Christie’s worldwide sales of contemporary art fell 69 percent during the first half of 2009, while its New York auction sales fell 51 percent during the same period. In May, Sotheby’s contemporary art auction in New York was down 87 percent from the previous year.

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Among other economic indicators one can look to in order to take the temperature of the economy is the art market.  For years prior to the talk of government bailouts, collateralized debt obligations, and Cash for Clunkers, the art market continued to raise eyebrows with tales of art work being sold at record prices.  Anyone remember in 2006 when Jackson Pollocks’s No. 5, 1948, was sold for about $140 million? Ah, the good old days.

Now that the Obama administration and the heads of the Federal Reserve are beginning to paint a more rosy picture of the overall economy, let’s take a look at the art auction markets to see whether things may be turning around there as well.

Daily Finance reports here, that, after shrinking for the past five quarters, the Art Price Global Index, increased 4.97 percent in the second quarter of 2009.

The article also reports that auction houses like Sotheby's (BID) and Christie's (CTG) experimented with “selling lower-quality as well as offering fewer lots and eschewing price guarantees.”  Since then, Sotheby's CFO has said the market has bottomed out and ArtPrice is reporting increases in sale prices and confidence.

When the unemployment rate is particularly high, the price of art may seem to some to be a less than important economic indicator.  Yet, it is, like many other indicators, telling.  When times are rough for the general population, the market for art suffers.  And now as the economy (hopefully) turns for the better, so do signs of life begin to appear (hopefully) in the sale of fine art.  However, lest anyone get excited about a rebound in the art market, see the other blog entry entitled The Great Recession and Art Investment Funds. 

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The Boston Globe reported today that a retired criminal defense lawyer, Robert M. Mardirosian, was sentenced to seven years in federal prison for “possessing six Impressionist paintings that he knew were stolen in 1978 from a house in the Berkshires in what is believed to be the largest private art theft in Massachusetts history.” 

United States District Court Chief Judge Mark L. Wolf had strong words for the defendant, apparently telling him: “You started as a lawyer . . . [a]s far I'm concerned, you became a glorified fence." The case stems from charges that Mardirosian took six Impressionist paintings that had allegedly been stolen by one of his clients from a Berkshires house and stored them in Europe. 

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