Case Review: Art Works, Inc. v. Diana Al-Hadid

November 3, 2022

By Nina Rice*

The history of New York’s statutory law pertaining to the art market is relatively brief despite the state’s long held status as the art capital of the United States, if not the world. As visual arts continue to evolve in complexity, lawsuits between artists and their gallerists, too, have become increasingly more complex. It begs the question of whether New York should expand upon its legislative history with further amendments to the New York Arts & Cultural Affairs (NYACAL) or any other art laws. For example, currently, NYACAL, which governs artist-gallery relationships, does not explicitly address any scenario where the gallerist or merchant funds the creation of an artwork and employs a third party to assist in producing the works nor does it address any of the complications that such interactions can create in an artist-gallerist relationship. NY’s Commercial Code similarly is silent on this point.

Background

On February 23, 2021, Marianne Boesky Gallery, incorporated as Art Works, Inc., (“Art Works”) filed a complaint against sculptor and mixed media artist Diana Al-Hadid declaring that Art Works had an ownership interest in Al-Hadid’s unsold works and was entitled to share in the proceeds from any sale.^[1] On May 9, 2022, Justice Louis Nock entered a judgment in favor of Al-Hadid. What sets this lawsuit apart from notable cases between artists and gallerists dealing with the question of ownership, which is clearly stated in NYACAL § 12, is the fact that the gallerist here funded a third party to assist in creation of the works. Terms of ownership set forth in NYACAL do not explicitly address circumstances which include a third party interest and the gallerist’s funding of the creation of works. Thus, this case looks to the terms of the contract.

Al-Hadid and the Gallery entered into a consignment agreement^[2] on February 17, 2011, which stipulated the rights to profit off of five sculptures^[3] and costs which the Gallery would take on to facilitate the creation, marketing, and sale of Al-Hadid’s five sculptures. The fabrication costs were about $25,000 for each sculpture. In 2019, Boesky terminated its representation of Al-Hadid. At that time, one sculpture remained unsold.

Boesky originally filed suit in 2021, alleging that pursuant to the 2011 agreement, the Gallery was entitled to one-third of the shares of multiple sculptures, plus the one-third share of the fabricator, Graphicstudio. Previously the Gallery had purchased these interests from the fabricator. The Gallery asserted that it was entitled to a share of ownership in the unsold work because the Gallery financed Al-Hadid’s fabrication costs and purchased the fabricator’s share in the work. Al-Hadid unequivocally asserted complete ownership of the unsold work, stating that the 2011 Agreement was terminated in 2012 and further, pursuant to the New York Arts and Cultural Affairs Law, the gallery has no greater ownership to the work then Al-Hadid.^[4]

A Brief History of New York’s Art Laws

New York State amended its General Business Law to include its first law pertaining to the gallery-artist relationship in 1966, stating that any artwork delivered by the artist to the gallery for the purpose of its sale within the gallery would be deemed to be a consignment and that the gallery is to act as the agent for the artist. ^[5] In 1969, the law was amended to require art merchants to act as fiduciaries, making the dealer liable to the artist of the consigned artwork and requiring proceeds of a sale of consigned artwork to be held in trust by the gallery for the benefit of the artist (here, the consignor).^[6] The gallery must “deal fairly and honestly with the artist, to account periodically to the artist as to dispositions of the property, and to disclose to the artist all information relevant to the subject matter of the agency.”^[7] In 2011, New York finally modified the Arts and Cultural Affairs Law, 45 years after its initial effort to protect artist’s rights in relation to the art market, and in 2012, amended its Arts and Cultural Affairs Laws to allow for criminalization of gallerists and art merchants who fail to act responsibly with regards to payments received for the sale of an artwork, further regulating their fiduciary duty in consignment agreements.^[8] Currently, after an even more significant boom in New York’s art scene, with over 1,000 galleries in New York City alone, this codification has not been amended in respect to ownership of art co-produced.^[9]

Now, the relevant section of NYACAL reads in part:

NYACAL § 12.01 (a), (c):

1. Notwithstanding any custom, practice or usage of the trade, any provision of the uniform commercial code or any other law, statute, requirement or rule, or any agreement, note, memorandum or writing to the contrary:

(a) Whenever an artist or craftsperson, or a successor in interest of such artist or craftsperson, delivers or causes to be delivered a work of fine art, craft or a print of such artist’s or craftsperson’s own creation to an art merchant for the purpose of exhibition and/or sale on a commission, fee or other basis of compensation, the delivery to and acceptance thereof by the art merchant establishes a consignor/consignee relationship as between such artist or craftsperson, or the successor in interest of such artist or craftsperson, and such art merchant with respect to the said work, and:

(i) such consignee shall thereafter be deemed to be the agent of such consignor with respect to the said work;

(ii) such work is trust property in the hands of the consignee for the benefit of the consignor;

(iii) any proceeds from the sale of such work are trust funds in the hands of the consignee for the benefit of the consignor;

(iv) such work shall remain trust property notwithstanding its purchase by the consignee for his own account until the price is paid in full to the consignor;  provided that, if such work is resold to a bona fide third party before the consignor has been paid in full, the resale proceeds are trust funds in the hands of the consignee for the benefit of the consignor to the extent necessary to pay any balance still due to the consignor and such trusteeship shall continue until the fiduciary obligation of the consignee with respect to such transaction is discharged in full;  and

(v) such trust property and trust funds shall be considered property held in statutory trust, and no such trust property or trust funds shall become the property of the consignee or be subject or subordinate to any claims, liens or security interest of any kind or nature whatsoever of the consignee’s creditors.

(c) Proceeds from the sale of consigned works covered by this section shall be deemed to be revenue from the sale of tangible goods and not revenue from the provision of services to the consignor or others, except that the provisions of this paragraph shall not apply to proceeds from the sale of consigned works sold at public auction.

The following is a study of two recent cases that cited NYACAL 12.01 in connection with consignment agreements between artist and galleries that went array: Art Works, Inc. v. Al-Hadid, No. 651267/2021, 2022 N.Y. Misc. LEXIS 2428 (Sup. Ct. New York Co. 2022) and Scher v. Stendhal Gallery, Inc., 983 N.Y.S.2d 219 (App. Div. 2014).

Holding in Art Works, Inc. v. Diana Al-Hadid

Justice Nock ruled that the agreement between Boesky and Al-Hadid “did not evince an intent to create joint ownership in defendant’s work,” and thus the Gallery has no claim to ownership.^[10] The agreement only created a consignment through which the Gallery would sell the sculptures for Al-Hadid in exchange for one-third of the sales proceeds. Therefore, the Gallery is only entitled to a share of the proceeds, not a share of the art itself, even if it was unable to recoup the funds advanced for the creation of the sculptures through sale during the term of the agreement. The ruling was appealed and on appeal affirmed in favor of the artist, with attorney fees awarded to Al-Hadid.

This case echoes another lawsuit between artist and gallerist, Scher v. Stendhal Gallery, Inc.^[11] In Scher, renowned graphic designer and fine artist Paula Scher sued Stendhal Gallery for the relinquishment of over 300 unsold works from the gallery.

While Scher’s case revealed a litany of complaints rising from the corrupt intentions of her gallerist, the gallery incurred around $300,000 in printing and production costs and believed it was entitled to partial ownership of the works. The gallery argued that NYACAL § 12.01 did not apply because what the two parties had was not a consignment agreement. Under NYACAL § 12.0, a consignment agreement is created when the artist, already having title to an artwork she created, then delivers the piece of art to an art merchant for sale; here, the gallerist engaged the printer, paid the printer, and took delivery of the prints from the printer to be sold in the gallery. Therefore, the artist never actually delivered the art works to the gallery.

The court struck down this argument and asserted that Scher was the owner of the works, and according to their agreement, the gallery was acting as Scher’s agent. As Scher’s agent, they were prohibited from acting for their own self-interest or benefit.^[12] Essentially, the Court asserted that if the gallery wanted to be entitled to the works of art, they should have disclosed this, in plain terms, to Scher at the time of contracting.^[13]

Scher and Al-Hadid’s cases share a similar issue: Stendhal Gallery, like Marianne Boesky Gallery, maintained that because it financed and oversaw the fabrication of the works, in this case the silk-screen printing of Scher’s Maps collection, that it was entitled to the ownership of the unsold works.

Implications

The ruling in Art Works, Inc v. Diana Al-Hadid sets precedent in that ownership, regardless of whether an art merchant finances the creation of artwork, is undisputedly entitled to the artist, unless the merchant and artist explicitly contract for a provision stating otherwise. However, artists may still take extra precaution when entering a consignment agreement to prevent questions of ownership or debts upon the termination of the relationship. Galleries, in turn, must recognize that there is a certain amount of risk entailed with taking on a new artist, especially so when they advance funds for the creation of works, and they too can negotiate terms to an agreement to divide risk amongst parties.

Al-Hadid is now represented by Kasmin Gallery in New York (also Berggruen gallery in San Francisco and Morán Morán gallery in Los Angeles), where several of her pieces are on display. Upon meeting with her agent and another representative at Kasmin, it was clear that there are still galleries that remain proponents for artists’ rights. Both representatives spoke positively about the ruling and the precedent for future artists like Al-Hadid. Al-Hadid’s contract, as with all contracts at Kasmin Gallery, include a confidentiality clause. So while we are unable to know exactly how Al-Hadid now operates in terms of how creation pertains to ownership, one can assume that Al-Hadid has now learned from her case and that any agreement should contain terms outlining how a third party fabricator and any funding from the gallery for creation of future works effects ownership.

Scher, a veteran of the arts and design, unashamedly has taken the opposite route – a return to old-fashioned roots. She is now represented by two galleries, Jim Kempner Fine Art (NYC) and Bryce Wolkowitz Gallery (NYC), and has no formal contract in place with either. “If you cannot do business on a handshake with someone,” in this industry, Scher concedes, “then they are not worth doing business with at all.”

Does Scher have the right idea? Should artists, who are, for the most part, often by choice, not seasoned businessmen and women, oblige by the once traditional norms in hopes that good faith and governing law set forth to protect them prevail, or should they take matters into their own hands? And if it is the former, will the precedent set by Art Works, Inc v. Diana Al-Hadid, coupled with the current iteration of NYACAL, be enough to protect future artists from encountering lawsuit similar to Al-Hadid and Scher, or should there be further amendments to the NYACAL which would have made both the claims in Scher and Al-Hadid fail on their face? There are many more questions to be asked in this space and no one model fits all answer, save for the duties owed by parties to each other following good faith negotiations. If you want to learn more about this subject or ask your questions, take a look at the Center’s Artist-Dealer Relations Clinics.

About the Author: Nina Rice is a second-year student at New York Law School and member of the Center for Art Law intern class of 2022. With a passion for artist’s rights, Rice enjoys exploring the possible complexities of consignment agreements and laws that govern relationships in the art market.

Additional Reading Suggestions:

ARTnews, New York Judge Sides with Artist in Lawsuit Brought by Former Gallerist Over Bronze Sculpture and ‘Unpaid Sum,’ (2022).

Center for Art Law, Case Review: Scher v. Stendhal Gallery, Inc., et al., (2014).

Judith Wallace, ArtNet, Art Law on Consigning Art, Who needs protection when consigning art? (2013).

Leslie W. Chervokas and Stephen D. Brodie, Art & Advocacy, The Art Law Newsletter of Herrick, Feinstein LLP, Volume 13. (2012).

More about artist Diana Al-Hadid can be found here.

More about artist Paula Schere can be found here.

1. Art Works, Inc. v. Al-Hadid, No. 651267/2021, 2022 N.Y. Misc. LEXIS 2428 (Sup. Ct. New York Co. 2022) at 6. ↑
2. For a one-year term, with the option to extend. ↑
3. (1/3-3/3 and AP 1/2 and 2/2) ↑
4. New York Arts and Cultural Affairs Law §11.01(12): “On consignment” means that no title to, estate in, or right to possession of, the work of fine art or multiple that is superior to that of the consignor vests in the consignee, notwithstanding the consignee’s power or authority to transfer or convey all the right, title and interest of the consignor, in and to such work, to a third person. ↑

5. Mayer Brown, Special Rules Govern Consignments of Art in New York (Jan. 3, 2017), https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2017/01/special-rules-govern-consignments-of-art-in-new-yo/files/get-the-full-report/fileattachment/161229-update-bf-bfl.pdf ↑

6. Id. ↑

7. Ralph E. Lerner & Judith Bresler, Art Law, 6 (Practicing Law Institute, 3^rd ed. 2005). ↑
8. NYACAL § 12.01. ↑
9. Amendments have been passed in respect to other areas, see A.107/S.7536 (https://www.assembly.state.ny.us/leg/?bn=A00604&term=&Summary=Y&Actions=Y&Votes=Y&Memo=Y&Text=Y) and A.8604-B/S.4988-B (https://www2.nycbar.org/pdf/report/uploads/20072122-ReportonA7189S4988reNewYorkArtsandCulturalAffairsLawNYACAL.pdf). ↑
10. Art Works, Inc. v. Al-Hadid, No. 651267/2021, 2022 N.Y. Misc. LEXIS 2428 (Sup. Ct. New York Co. 2022). ↑
11. Scher v. Stendhal Gallery, Inc., 983 N.Y.S.2d 219 (App. Div. 2014). ↑
12. Reed v. Warner, 5 Paige Ch 650, 656 (1836). ↑
13. Scher, at 25. ↑