By Clara Cassan and Center for Art Law.
On April 29-30, 2021, the Federal Bar Association hosted its annual Art Law & Litigation Conference with a virtual twist. Co-chaired by Raymond Dowd and L. Elizabeth Dale, of Dunnington, Bartholow & Miller LLP (NY), this two-day program welcomed art law experts and speakers from across the world.
Introduced by Monica Dugot, current Board Member of the Foundation Remembrance, Responsibility and Future (Germany) and former General Counsel at Christie’s, historian Jonathan Petropoulos discussed his book Goering’s Man in Paris: The Story of a Nazi Art Plunderer and His World (Yale University Press, 2021). In the course of writing his book, Petropoulos interviewed Dr. Bruno Lohse nearly thirty times. Loose is a former SS soldier who, during the Nazi-era, was instructed to supervise Nazi lootings in Paris. After the war, he managed to reinvent himself as an art dealer and lived an extravagant life.
Nazi-looted art, as Petropoulos explained, is mostly governed by soft law. Resolving claims around artworks stolen by Nazis requires patience and dedication. While some of these artworks have been recovered and returned, many victims’ heirs are either still awaiting restitution, or are unaware that their ancestors were pillaged. After the war, some European Governments united in an attempt to recover stolen property and drafted the Washington Conference Principles on Nazi-Confiscated Art. These principles establish restitution guidelines, raise awareness for all Nazi-looted property, and encourage transparency. Unfortunately, they have not led to legal uniformity.
Dugot explained that, when studying a restitution issue, lawyers should keep two questions in mind: whether the artwork was delivered to Nazi Germany under duress and, if so, whether the investigation was performed in a just and fair manner. Petropoulos added that restitution claims are often countered with procedural arguments such as: Laches, statute of limitations, or choice of law. To combat this, the U.S Congress’s Holocaust Expropriated Art Recovery (“HEAR”) Act of 2016 replaced state and federal statutes of limitations with a uniform six-year statute of limitations period that begins after actual knowledge of a claim arises. Petropoulos also referred to Reif v. Nagy, in which the New York Appellate Division ruled that the HEAR Act abrogated all laches defense “where Nazi-looted art is at issue” and only referred to statutes of limitations. Under the HEAR Act, the “statute of limitations and laches defenses fail.”
To conclude, there is an obvious need in restitution cases for more centralized information and harmonized rules of law. While databases such as the Art Loss Register or Looted Art play an essential role in restitution cases, the art market community would strongly benefit from the creation of a single, official database for Nazi looted art.
Moderated by Amelia Brankov, Founder of Brankov PLLC (NY), this panel addressed many ways in which auction houses, galleries, and collectors have changed their practices in the wake of the pandemic.
Sherri Cohen, Head of Business Development USA at Bonhams (NY), started by discussing auction houses’ quick transitions to tech innovation and digital sales after lockdown. In May 2020, Bonhams was one of the first U.S. auction houses to implement an online/hybrid sale model for its Native American Art Sale in Los Angeles, CA with an auctioneer in Oxford, UK. Sotheby’s, Christie’s, and Phillips followed suit in June and July. Now, auctions can take place at different locations simultaneously, with multiple auctioneers, over the course of multiple days and must account for tech delays. Auction houses also found alternatives to exhibitions including: private viewings, VR walkthroughs, and staged videos and photos to recreate the experience of seeing works in person. Additionally, condition reports are more extensive, including third-party condition reports. In that way, the pandemic seems to foster creativity and presentation.
Karen Boyer, Founder of Elements in Play Fine Art Advisory (FL), continued by explaining that, on the buyer’s side, auction houses continue to attempt to sell property. After initially pushing the dates of sales, auction houses have ramped up private sales and pushed online sales. This means a shift away from the traditional art market calendar centered around a few major sales. Now, sales happen all over the world and big sales take place on an almost daily basis.
Azmina Jasani, Partner at Constantine Cannon LLP (UK), added that this shift also pushed auction houses to update their terms and conditions by strengthening consumer protection and broadening force majeure provisions to account for government restrictions and the pandemic. Jasani spoke at length about the new anti-money laundering (“AML”) regulations, which came into force in January 2020. The regulations require E.U and U.K art market participants to perform customer due diligence (“CDD”) checks for every art transaction worth €10,000 or more. The ultimate beneficial owners (“UBO”) of art transactions must now identify themselves. Cohen explained that, in the context of private or public auction sales, the party most impacted by due diligence requirements will be the “middleman” (art galleries, art dealers, or independant parties). These parties’ role is to communicate directly with auction houses on behalf of the UBO in order to maintain the UBO’s anonymity. With the new CDD requirements, these “middlemen” will be obligated to reveal the ultimate buyer’s identity, threatening their role in auction sales. Panelists concluded by noting that technology and AML regulations have added transparency to the art market, an important progress they hoped will persist.
Moderated by Steven Schindler, Partner at Schindler Cohen & Hochman LLP (NY), the third panel of the day concerned the controversial topic of museum deaccession, which entails permanently removing objects from a museum collection. Maxwell L. Anderson, President of Souls Grown Deep Foundation and former AAMD President, Katherine Wilson-Milne, Partner at Schindler Cohen & Hochman LLP (NY), and Lena J. Wong, Assistant General Counsel at the Brooklyn Museum and former Compliance Counsel at Sotheby’s (NY), discussed the current issues.
Deaccession raises two main questions: when can a work be deaccessioned, and how can the deaccession proceeds be used? From state non-profit laws to private contracts, deaccessioning triggers fiduciary obligations and conflicts of interest that require close attention. Deaccessioning must be a carefully weighed-out decision. Experts should start by evaluating whether a work is appropriate for deaccessioning. If so, museums must then decide how best to dispose of the piece. Auctions are preferable, but some museum pieces have been sold through private sales.
The ethical deaccessioning standards are laid out by professional collectives like the American Alliance of Museums (“AAM”) and the Association of Art Museum Directors (“AAMD”). In New York specifically, rules 3.27(c)(6)-(7) of the New York Codes, Rules, and Regulations defines circumstances under which local museums can deaccession parts of their collections. The AAM generally follows these same standards but in 2019 it amended its standard so that deaccession proceeds could be used for direct care costs, as long as museums created a policy and made the information public. That same year, the Brooklyn Museum began its own deaccession process from which the funds helped improve the collection’s restoration and quality. In 2020, the AAMD, which usually restricts deaccessioning funds to the purchase of new artworks, loosened its restrictions due to COVID-19 and allowed museums to use these funds to cover the costs of general operations. Since then, the Baltimore Museum of Art and the Everson Museum have engaged in closely-watched sales.
U.S. art museums primarily rely on donations for funding, and stories of deaccessioning often make headlines. As noted during the panel, 80 to 90% of U.S. art museum collections are acquired by private donations. Yet, Wilson-Milne pointed to the fact that private collectors might become reluctant to donate artworks if they know these might be deaccessioned in a few years. Thus, museums must find the right balance between generating new funds to maintain their staffing needs and caring for their current collections, while encouraging art donations and continuing to expand.
The appraisal panel was moderated by Aaron Brian, of Counsel at Nixon Peabody LLP (CA). The three participants, Susan Davidson, New York-based Curator, Art Historian, and former Curatorial Advisor to the Robert Rauschenberg Foundation, Guy Jennings, Managing Director of The Fine Art Group (UK), and Blake Koh, Regional Director at Phillips Auction (CA) discussed the art of appraising art.
Before placing a price tag on an artwork, the appraiser must understand the purpose of the appraisal. The valuation will take on a different meaning (and a different price) depending on whether it is conducted for estate, tax, sale, or insurance purposes. Panelists further insisted on the subjectivity that necessarily comes with art appraisal. It is common for art experts within the same auction house to disagree on a work’s monetary value.
Competing monetary values have occurred between art institutions and the Internal Revenue Service (“IRS”). In Estate of Kollsman v. Commissioner of Internal Revenue (2018), the U.S Court of Appeals for the Ninth Circuit found that the Tax Court had not erred in raising the fair market value of two paintings owned by plaintiffs. In 2012, Robert Rauschenberg’s famous “Canyon” (1959) painting raised an appraisal issue because the work included a stuffed bald eagle, a species whose commercialization is prohibited by the Migratory Bird Treaty Act and Bald Eagle Protection Act of 1940. Unsellable, the painting was valued at zero. Still, the IRS argued that were “Canyon” to be sold on the black market, it would be worth around $65 million. Thus, according to the IRS, its owners, Ileana Sonnabend’s heirs, should be taxed on the painting’s illegal value. The owners ultimately donated the work to MoMA.
The panel concluded with the inescapable subject of non-fungible tokens (“NFTs”). Can NFTs be appraised, and, if so, how? It is still too early to evaluate these types of digital works, as they have been on the market for less than a year. The staggering sale price that Beeple’s NFT reached at the Christie’s public auction in March reflected an excitement that might be temporary.
Panel 1 – How Artificial Intelligence and Non-Fungible Tokens Just Smashed the Art World to Smithereens with a $69M Christie’s Auction Price
In this headliner conversation between Helen Allen, Executive Director of The Winter Show (NY), Miltos Maneta, Artist (IT), and Massimo Sterpi, Partner at Gianni Origoni Grippo Cappelli & Partners (IT), panelists discussed how non-fungible tokens (“NFTs”), a blockchain-based way to own, sell, and collect digital collectibles, are shaking the art world.
NFTs store information and link to physical or digital objects. Through their reliance on smart contracts, NFTs allow automatic resale royalties for the creator. However, purchasing an NFT does not mean acquiring the underlying artwork; rather collectors get an implied, non-exclusive license to store and display the artwork for personal purposes only. However, the costs of minting (uploading and storing a piece on the blockchain), storing, and selling an NFT may quickly become prohibitive. Numerous marketplaces offer artists and collectors a platform to virtually connect and trade NFTs, although they vary as to their model (open or curated), fees, and Terms & Conditions. For the sale of Beeple’s “EVERYDAY”, Christie’s had to create specific conditions, noting that the piece is encrypted with artist’s signature and is free of viruses or other harmful components, and explaining the associated property rights for the lot, all while disclaiming that there are risks associated with purchasing and holding NFTs.
NFTs and digital arts are ever-evolving spaces. As more collectors, entrepreneurs, and artists turn to them, attorneys must get up to speed and should expect to see NFTs around for many years.
The COVID-19 pandemic has forced auction houses and other art market intermediaries to make long-term changes in order to survive. This panel, moderated by Anne-Laure Alléhaut, Counsel at Patterson Belknap Webb & Tyler LLP (NY), was divided into two main topics: the potential risks of selling at auction and how to prevent them, as well as the U.S.’s recent AML regulations and their implications.
Shifting Risk of Selling at Auction
Jo Laird and Lisa Wang, respectively of Counsel and Associate at Patterson Belknap, discussed Cristallina S.A. v. Christie, Manson & Woods Int’l, where the Appellate Division for the NY Supreme Court held that, in the context of art auctions, Christie’s was an agent to its consignors and “had a fiduciary duty to act in the utmost good faith and in the interest of…its principal.” However, the U.S. District Court for the Southern District of NY later noted that Christie’s could protect itself and its business’s reputation, in addition to its consignors’ through the company’s internal agreements. The force majeure clause in these agreements allows auction houses to unilaterally terminate the consignment agreement in “circumstances beyond [the auction house’s] reasonable control.” Under this provision, an auction house has no obligation to reschedule a cancelled or postponed auction. Hence the importance of reading every consignment agreement.
During the pandemic, Christie’s and Sotheby’s have seen their overall auction revenues drop at a general average of 35%. On the other hand, both companies have benefited from a more than 50% increase in private sales. This is because private sales allow consignors to have more control over timing, price, selling conditions, and anonymity, all of which were attractive during the pandemic.
AML Regulations and OFAC Compliance 2020
Harry Sandick, Partner at Patterson Belknap, and Jane Levine, Worldwide Director of Compliance for Sotheby’s and Columbia Law School Professor, discussed AML regulations in the antiquities market, which has been under scrutiny for years because of illicit trafficking and even more recent links to terrorist financing. In spite of this preexisting concern, the U.S. Anti-Money Laundering Act of 2020 (“AMLA”) is the most significant change to American AML laws since the USA Patriot Act of 2001. Under the AMLA, the Department of the Treasury is required to establish new laws that will reduce the threat of money laundering and terror financing in the antiquities and arts trade. Since January 2021, the 1970 Bank Secrecy Act (“BSA”) applies to “a person engaged in the trade of antiquities, including an advisor, consultant or any other person who engages as a business in the solicitation or the sale of antiquities.” In March 2021, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) informed art and antiquities dealers that they will be held to the same reporting standards as financial institutions are under the BSA.
Levine advised antiquity dealers to conduct regular customer due diligence, including knowing the ultimate buyer’s name, address, and date of birth. In the future, it will become necessary for antiquity sellers to appoint staff members to oversee AML compliance, to train their staff, and to share suspicious activity reports when it is clear that the client’s source of funds is illegal.
Sandick’s presentation focused on the role of the Office of Foreign Assets Control (“OFAC”) in the art market. As a governmental office, OFAC administers and enforces economic and trade sanctions programs. These sanctions can be placed against countries or private parties. Sandick recommended that antiquities and art market dealers use OFAC’s Sanction List Search list to make sure their customers have not been sanctioned by OFAC.
Panel 3 – Street Art and Real Property: What Lawyers Need to Know About the Visual Artists Rights Act
Hannah Barbosa Cesnik, second-year student at Yale Law School (CT), presented the layout, from Richard Serra’s “Tilted Arc“, the passage of the federal Visual Artists Rights Act (VARA) in 1990, Carter v. Helmsley-Spear, Inc. (the first case interpreting VARA), up until the 5Pointz case which defined the scope of the moral right against the willful destruction of a work of recognized stature without proper notice to its author(s).
Christopher Robinson, of Counsel at Rottenberg Lipman Rich, P.C. (NY) and attorney involved in the aforementioned case, outlined the facts, procedure, outcome, and takeaways: besides applying VARA rights to authorized aerosol art, it affirmed that a work being temporary does not prevent it from achieving recognized stature, which is a more “fluid” concept than the defendant argued.
Philippa Loengard, Deputy Director and Lecturer in Law at Columbia Law School (NY) gave a summary of recent VARA cases involving street and public art including:
- Kerson v. Vermont Law School where artist-plaintiff Samuel Kerson sought a preliminary injunction to prevent Vermont Law School from placing a barrier in front of two murals he painted in 1993. The motion was denied in March 2021, and the law school was allowed to proceed with its plans to place the murals behind acoustic panels.
- The lawsuits and concerns about Black Lives Matters murals being government-sanctioned in Washington, DC and elsewhere.
- The story of the Charging Bull and the Fearless Girl and the associated questions of derivative works and moral rights.
- The lawsuit brought by artist Molly Mason over the modification of her steel sculpture and water feature by its owner, the Kirkwood Community College in Cedar Rapids, IA.
- Guzman v. New Mexico where a federal judge recently declined a temporary injunction whereby the plaintiff sought to prevent the destruction of his mural in Santa Fe, NM.
- The case of the Painted Bride Art Center involving a Philadelphia-based nonprofit organization seeking to sell its building, on the side of which artist Isiah Zagar had created a 7,000-ft mosaic.
Panel 4 – Sovereign Immunity and Nazi-Looted Art in the U.S. Supreme Court: Federal Republic of Germany v. Philipp
In December 2020, O’Donnell argued in the Supreme Court of the United States as lead counsel to plaintiffs in Federal Republic of Germany et al. v. Philipp et al.. Plaintiffs, the heirs of German Jewish art dealers, sought restitution of the Guelph Treasure, which was sold under duress to the Prussian government in 1935. This case was the first in which a U.S. court found jurisdiction over a German state museum for claims to allegedly Nazi-looted art.
The main issue in this case pertained to the applicability of the Foreign Sovereign Immunities Act (“FSIA”) of 1976. Plaintiffs argued that, under exception §1605(a)(3) of the FSIA, Germany was not protected by sovereign immunity because the case involved “property taken in violation of international law” and the property in question was “owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States.” The Federal Republic of Germany (“FRG”) argued that, under exception §1605(a)(3), a sovereign’s taking of its own nationals’ property is not unlawful under the international law of expropriation. Plaintiffs responded that the heirs were not German nationals at the time of the takings because Nazi Germany prohibited Jews from having German citizenship. The FRG added that the exception strictly applied to violations of property-related rights and “commercial activity,” rather than violations of human rights law or the Holocaust. In response, the plaintiffs pointed to the Foreign Cultural Exchange Jurisdictional Immunity Clarification Act, which specifies that “art exhibition activities” in the FSIA do not qualify as “commercial activity,” and, that Nazi-era claims could be adjudicated under this exception. Ultimately, the Supreme Court ruled in the defendants’ favor and remanded the parties’ nationality arguments, holding that “Congress’s effort to preserve sovereign immunity in a narrow, particularized context…does not support the broad elimination of sovereign immunity across all areas of law.”
O’Donnell recalled that the United States had vowed to remove all constraints to sue Nazi Germany and that the outcome of F.R.G v. Philipp proved there are still important obstacles within the justice system. Art restitutions in Austria and Germany are governed by soft law guidelines implemented by commissions and advisory boards. Neither of these countries has adopted specific restitution laws, which leads to inconsistent outcomes. Much of the control is left to the parties in possession of the artifacts. O’Donnell stressed the important role of museums in the fight for restitution of Nazi-looted art and encouraged them to conduct thorough provenance research on all their collections.
- Holocaust Expropriated Art Recovery (HEAR) Act of 2016, Pub. L. No. 114-308, 130 Stat. 1528. ↑
- Reif v. Nagy, 106 N.Y.S.3d 5 (N.Y. App. Div. 2019). ↑
- The Money Laundering and Terrorist Financing (Amendment) Regulations 2019, No. 1511 (2020); Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU. ↑
- 8 CRR-NY 3.27. ↑
- Estate of Kollsman v. Comm’r, T.C. Memo. 2017-40 (U.S.T.C. Feb. 22, 2017). ↑
- The Migratory Bird Treaty Act of 1918 (MBTA), 16 U.S.C. §§ 703–712 ; The Bald and Golden Eagle Protection Act, 16 U.S.C. § 668 et seq. ↑
- Cristallina S. A. v. Christie, Manson & Woods International, Inc., 117 A.D.2d 284 (N.Y. App. Div. 1986). ↑
- The Anti-Money Laundering Act of 2020, Pub.L. No. 116-283. ↑
- Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001; 18 U.S.C. § 1 nt.. ↑
- The Bank Secrecy Act (BSA), 31 U.S.C. § 6110(a). ↑
- Financial Crime Enforcement Unit, FinCEN Informs Financial Institutions of Efforts Related to Trade in Antiquities and Art, U.S. Treasury Dep’t (Mar. 9, 2021). ↑
- Visual Artists Rights Act, 17 U.S.C. §106A. ↑
- Carter v. Helmsley-Spear, Inc., 861 F. Supp. 303 (S.D.N.Y. 1994). ↑
- Castillo v. G&M Realty L.P., 950 F.3d 155 (2d Cir. 2020). ↑
- Kerson v. Vt. Law Sch., Inc., No. 20-cv-00202 (D. Vt. Mar. 10, 2021). ↑
- Judicial Watch. v. Muriel Bowser, et al., No. 20-cv-01789 (D.D.C. filed July 7, 2020). ↑
- Mason v. Kirkwood Community College, No. 21-cv-00027 (N.D. Iowa filed Mar. 16, 2021). ↑
- Guzman v. New Mexico Dep’t of Cul. Aff. et al., No. 21-cv-00198 (D. N.M. filed Mar. 3, 2021). ↑
- In re. Painted Bride Art Ctr. Inc., No. 1642 (C.D. 2019). ↑
- Federal Republic of Germany v. Philipp et al., No. 19-351, slip op. at 1 (U.S. Feb. 3, 2021). ↑
- Foreign Sovereign Immunities Act of 1976, 28 U.S.C. § 1605. ↑
- Foreign Cultural Exchange Jurisdictional Immunity Clarification Act of 2016, Pub.L. No. 114-319. ↑
About the Author: Clara Cassan holds an LL.B in Civil Law from the Université Montpellier I (France), master’s degrees in International Law (2017) and Art Market Law (2018) from the Université Paris I, Panthéon-Sorbonne, and an LL.M in Intellectual Property Law from Fordham University School of Law (2019). She currently works as a Summer Associate for the Art Law and IP firm Amineddoleh & Associates LLC.
Acknowledgments: The Center for Art Law was a proud Educational Partner to the conference and wholeheartedly thanks the Federal Bar Association, Raymond Dowd, Betsy Dale, and Caitlin Rider for their trust. Further thanks to Marie Kessel, David Jenkins, Gabrielle Discafani, and Laura Kaiser.