Cave Consignor! NY Art Consignment Law Muscles Up

By Irina Tarsis

How is it in Latin: “Consignors be happy!” Years of efforts to revise the New York Consignment Law have paid off. Starting November 6, 2012, failure to pay specific art consignors, a category that includes artists, heirs to artists’ estates, and collectors, can be considered a misdemeanor in the state of New York.

On September 7, 2012 the act to amend the New York Arts and Cultural Affairs Law, in relation to consignments of works of art to art merchants by artists and their successors became new law, which reads in parts:

(a) Whenever a [particular type of consignor], 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) …
(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.

Consignor may waive provisions of this law only if the waiver is “clear, conspicuous, in writing, in words which clearly and specifically apprise the consignor that the consignor is waiving rights under this section with respect to proceeds from the sale of the consignor’s work” … provided:
(i) no such waiver shall be valid with respect to the first two thousand five hundred dollars of gross proceeds of sales received in any twelve-month period commencing with the date of the execution of such waiver;
(ii) no such waiver shall be valid with respect to the proceeds of a work initially received on consignment but subsequently purchased by the consignee directly or indirectly for his own account; and
(iii) no such waiver shall inure to the benefit of the consignee’s creditors in any manner which might be inconsistent with the consignor’s rights under this subdivision.

From now on, dealers owe fiduciary duty to artists-consignor, and if, as consignees, they do not separate proceeds for consignors from their own operating accounts, they can be convicted of a criminal misdemeanor as well as face fines and imprisonment. Any consignor injured under the revised law may bring an action to enjoin commingling of funds and recover his or her actual damages. In addition, the court may award reasonable attorneys’ fees, costs and expenses to a prevailing plaintiff in any such action.

One of the attorneys instrumental in drafting the amendment is Dean Nicyper, partner at Flemming, Zulack, Williamson, Zauderer, LLP. He has been quoted as saying “What we found in New York was that the galleries were not respecting [the law]… Galleries sold paintings they didn’t separate as trust, and the legislation had no penalty. It said, ‘you can’t do that,’ but it didn’t say what would happen if you did.” Following the Salander O’Reilly case, involving an Upper East Side gallery selling consigned works without paying consignors and declaring bankruptcy, New York had to make changes to protect artist-sellers. In re Salander O’Reilly Galleries, 453 B.R. 106 (Bankr. S.D.N.Y. 2011).  In Salander, many consigned objects that were not adequately separated from the gallery’s property were seized as security against Salander’s debt.

Source: NY CLS Art & Cult Affr § 12.01; ArtInfo.