The Times They Are a-Changin’– NYU Art Law Day’s Preview of Legal Developments

December 11, 2014

by Hanoch Sheps, Esq.

Once a year, legal practitioners and fine art appraisers descend upon New York to attend the Art Law Day conference. * Always a high point of the events calendar, the NYU School of Professional Studies along with the Appraisers Association of America prepare a cutting-edge conference on legal issues facing the fine arts field. This year was no exception. The panels presented a preview of highly anticipated developments in various art law fields. There were updates on proposed legislation at the State and Federal levels ranging from a national droit de suite to expert liability legislation to protect art authenticators. Experts from the governmental and private sectors also spoke about ongoing efforts to curb the import, sale and trade of items made from endangered species material. Finally, panelists revisited the saga of the so-called Gurlitt trove and discussed what fate awaits the vast assemblage of art. Here are some highlights:

Congressman Jerrold L. Nadler (D-N.Y.) speaks on the American Royalties Too Act of 2014 – HR 4103

The Droit de Suite – it is a household phrase in international artistic communities (and amongst signatories to the Berne Convention Article 14ter that officially recognized this right), but remains a foreign concept amongst North American notions of property and ownership.* Roughly translated as an “artist resale royalty”, the right, in theory and effect, would allow artists to recoup a fraction of the often-exponential increase in the value of their art throughout their careers. Congressman Jerrold L. Nadler (D-N.Y.) spoke about efforts in both houses of Congress to introduce the royalty at the Federal level with the enactment of the American Royalties Too Act of 2014. Congressman Nadler conceded that the recent congressional elections will undoubtedly affect the legislative agenda, but he remains positive about the likelihood for bi-partisan efforts in what he calls the “Intellectual Property arena”. He cites as support a recent report issued by the U.S. Copyright Office in favor of the royalty, and looks at the positive feedback from similar programs in the United Kingdom and elsewhere.

For the congressman, the right is about “fundamental fairness,” and trying to “correct an injustice” for visual artists. For others, the royalty would overly complicate transactions and compromise the privacy of a traditionally opaque market. Congressman Nadler noted that the larger auction houses, particularly Sotheby’s and Christie’s, are currently expanding their lobbying efforts to prevent the enactment of this legislation. As written, the bill places a significant portion of the responsibility of collecting the royalty on auction houses.

The most recent action on the bill in the House of Representatives was the bill’s referral to the Subcommittee on Courts, Intellectual Property, and the Internet. Congressman Nadler is now the Ranking Minority Member of that Committee, and is a sponsor of the legislation.

It is noteworthy that the proposed Federal legislation is not the first effort made to provide for the right in the United States. California enacted the California Resale Royalty Act (“CRRA”) in 1976, although ultimately struck down by the U.S. District Court in Los Angeles in 2012 as unconstitutional. However, the Ninth Circuit recently decided to review the two cases that form the basis of this conflict en banc (i.e., a full panel of Ninth Circuit judges). For a more complete analysis of the California cases, we refer you to the excellent coverage of the Art Law Report – Full Ninth Circuit to Review California Resale Royalty Act En Banc.

Congress has been eager to overhaul the copyright system to adapt it to current market realities for years. If that comes to fruition, it is unclear whether the resale royalty legislation would take a back seat – not to mention what effect that will have on the Ninth Circuit cases – or whether some crafty maneuvering could keep the royalty in the conversation.

*The United States is a signatory to the Berne Convention, but has not adopted the provision specific to the droit de suite.

The Fight for Endangered Species, Identifying the Combatants

On one side, you have Thomas Berkman, Deputy Counsel at the New York State Department of Environmental Conservation, and Craig Hoover, Chief at the Wildlife Trade and Conservation Branch of the U.S. Fish and Wildlife Service. They represent a movement within the Federal and State governments to curb, if not bring to a halt to, the sale of goods made from endangered wildlife parts. On the other, you have Michael McCullough, a Partner at Pearlstein & McCullough LLP, promoting the interests of the private sector, namely antiquities dealers, appraisers and collectors in preserving the endangered 600 million dollar annual trade in antiquities. In the center is the search for a middle ground between the promulgated rules and trade regulations and a market that has historically had legitimate means to trade in antiquities containing wildlife material.

At times, government regulators favor what some would call “ambiguous” and “over-inclusive” rules to limit fraudulent misrepresentations on customs forms. One example is the outright ban on the trade of mammoth material, fearing that traders would import elephant and rhinoceros ivory under false identification. The source of that problem is the difficulty in differentiating between certain animal species without intensive scientific analysis. The government chose to address this problem by establishing over-inclusive definitions in bans to curb illicit sales. In practice, however, appraisers in the audience were clearly frustrated in trying to understand how the government implements the laws – mammoths have been extinct for centuries, yet to curtail elephant ivory imports, the government has prevented trading in antiquities with mammoth material outright. This is but one example of an imperfect system, both parties with admirable goals, but no immediately discernable and practical solution.

Gurlitt – To Bern or not To Bern, That is Not the Only Question

The story of Cornellius Gurlitt has captivated the art world for over a year now, but remains in a metaphorical holding pattern on the approach to any discernable resolution. Christopher A. Marinello, Director and Founder of Art Recovery International Ltd., moderated a panel of experts consumed with this saga since the German newspaper Focus broke news of a trove of potentially Nazi-looted artworks. The story personally resonates with Marianne Rosenberg, an attorney and granddaughter of Paul Rosenberg, the renowned French gallery owner from whom the Nazis looted a significant amount of artworks.

Mr. Marinello and Ms. Rosenberg discussed the difficulties of recouping any of the works within the trove identified as part of the Rosenberg collection. The sudden death of Mr. Gurlitt in May and the announcement of the Kunstmuseum Bern in Switzerland as his sole heir stymied any progress made in negotiating the return of the works. The world waits to hear if Bern will accept the bequest, while Gurlitt’s heirs wait to make their move if the museum denies it (see update below). Further complicating matters is the recent revelation that the taskforce charged with discerning the provenance of most of the artworks in the trove will not meet its deadline.

Update since the conference: The Kunstmuseum Bern accepted the bequest and vowed to help with the restitution efforts.

Detroit Bankruptcy Conclusion Finally Provides Some Closure

At last, a panel with some closure. The story of the Detroit Institute of Arts (“DIA”) demonstrates that in the midst of Detroit’s acrimonious bankruptcy hearings, success stories did in fact emerge. Samuel Sachs II, Director of the Detroit Institute of Arts from 1985-1997, took the audience on a journey through some of the museum’s tumultuous history. His story led to the present, which saw the potential sale of portions of the DIA collection to satisfy the city’s creditors. Thankfully, the museum did not have to sell any works.

Serendipitously, on the morning of the panel, the presiding judge announced the striking of a “Grand Bargain” wherein the parties have permanently removed the entirety of the collection from this and any future financial dilemma of the City. In his opinion, Judge Rhodes stated, “[t]o sell the DIA art would be to forfeit Detroit’s future.” Richard Levin, Partner at Cravath, Swaine & Moore LLP, elaborated on Judge Rhodes’ comment to say that because of this decision, a precedent now exists to secure the future of similarly situated art collections. DIA has indeed taught everyone a valuable lesson – where an art collection is inextricably tied to a municipality, place the collection in a trust to protect it from the rights of the city’s creditors.

We all await to see what a new year, a new congress, and the Kunstmuseum’s refreshing outlook on restitution holds for lovers of art everywhere.

*We take this opportunity to thank the Center for Art Law for making attendance for some of its contributors possible.

About the Author: Hanoch Sheps, Esq., is an attorney in New York. He may be reached at Hanoch.sheps2@gmail.com.