Writing a Wrong

New York Changes its Laws to Protect Artists

By Michael McCullough

In an interview in 1976 with Barbaralee Diamonstein-Spielvogel , the great dealer Leo Castelli said, “[t]he function of an art dealer, well, can be various; certainly, a good art dealer, an art dealer who really cares for art and not about making money, should be to find new artists, make them known to the public.” When asked the insightful question about his role in the business of selling art, he responded, “I am more than somebody who wants to sell paintings. The selling of paintings seems to be a secondary thing. I have to, of course, sell them to finance my activity, but the activity really is the important game, my gallery. And I am very happy to just tag along in the midst of tremendous financial difficulties as long as I can keep the gallery going.”

That, in my opinion, is the way that the art market is supposed to work. Not to say that there is anything wrong with art dealers making money- the economics of operating a gallery have changed dramatically since Castelli’s time- but the basic principal should still stand: at no point in the calculation should the dealer’s interest in the artwork be greater than the sum total of the artist’s. The good dealer understands that the primary objective of a gallery is to promote the artist and the artwork, and there is plenty of money to be made along the way. But, there are people pretending to be art dealers in order to have fun, to throw big parties and to make buckets of money, even as the artists’ interests are abandoned as secondary concerns. And when it all goes horribly wrong with these ventures, as it always does, the death knell sounds when the dealer makes the insalubrious choice to pay the gallery’s debts before paying the artist.

Take the case of Sae Hyun Lee, a talented painter from South Korea, who, like most other artist, painted for years before receiving critical acclaim for his work. After several successful solo exhibitions in Europe, Mr. Lee received an invitation in 2011 from Nicholas Robinson Gallery for a solo show in New York. Ten paintings were consigned immediately. Two of the paintings sold before the show was over and Mr. Lee received his commissions, but things went very silent even before the gallery stopped returning phone calls about the return of the unsold artworks. It wasn’t long before the arrival of a terse letter from Nicholas Robinson’s attorneys about how the gallery was out of money and contemplating bankruptcy. Sadly, as it goes, neither the artwork nor the money could be accounted for properly, which means not at all.

This might have been the end of the story, save for the fact that Mr. Lee is represented in Seoul by Chan-kyu Woo of Hakgoje Gallery, a dealer cast from the Castelli mold. Mr. Woo engaged a New York lawyer, Henry Jung to press for the return of the artwork. Mr. Jung is a former Assistant District Attorney and a very good lawyer who had the very unpleasant experience of being my roommate in law school. Only after Mr. Jung filed a lawsuit in federal court last March, the judge issued a temporary restraining order against the gallery, and Nicholas Robinson himself appeared at a court hearing, did it become clear that Mr. Robinson had sold the paintings and spent the $370,000. Unfortunately for Mr. Lee, Mr. Robinson’s pockets were a bit light; in fact, they were empty. “How could this happen in New York, of all places?” asked Mr. Jung.

It’s not supposed to. In the 1960’s, the Arts and Cultural Affairs Law was passed in New York state to give artists certain protections: artworks consigned by an artist were deemed trust property and the proceeds of their sale were considered trust funds. This was done to dissuade irresponsible people from getting into the gallery business. The problem with the law was that it did not include any measures for enforcement and penalties, which, in a perverse way, enabled a dealer to use an artist’s sales proceeds to pay the gallery’s own operating expenses. If the gallery failed financially, the artist lost the money. In essence, a gallery that absconded with artwork or funds was subject to the same penalties as the drycleaner who failed to return your suit, although the dry cleaner would likely be decent enough to speak with you in person instead of through a lawyer, and might even apologize for the inconvenience.

The District Attorney’s offices might seem like the next port d’escale for Mr. Lee, as selling somebody else’s property and taking the money sounds like it should be a crime. Like most other things in life, it’s more complicated than it seems. That is to say, the failure of a dealer to pay the artist becomes a crime only if the dealer’s inability to pay is itself the result of an underlying criminal act. You may recall Larry Salander went to jail because, among other things, he used the proceeds of art sales to pay off prior debts in a Ponzi scheme. It would also be a criminal act for a dealer to use an artist’s money to enrich him or herself personally. In either example, the crime would be grand larceny which in New York State is pedigreed, like most other things, based upon the dollar amount involved. Law enforcement officials are often interested in art fraud cases, as they represent a welcomed break from drug dealers and purse snatchers; nevertheless the criminal nature of the event needs to be fairly certain for them to get involved. At first blush, the failure of a dealer to pay an artist is not necessarily indicative of any crime, perhaps just an unfortunate business decision. As a result, many of these cases are not investigated and artists, like Mr. Lee, are forced to bring civil lawsuits against galleries and gallery owners in order to protect their rights.

Remarkably, the balance of power shifted in October to favor the artists; a new law was enacted in New York giving teeth to the trust property and trust fund provisions in the existing law. Now, the artwork and the sales proceeds are considered property held “in statutory trust” and cannot become the property of the gallery or be subject to any claims by gallery’s creditors. Perhaps more important, the law adds clear penalties for its violation: a dealer who absconds with artwork or an artist’s money commits a misdemeanor criminal offense and is subject to criminal prosecution and fines. I’ll concede that it’s rare for a defendant convicted of a misdemeanor charge to serve jail time for a first offense, but the new law is ripe for judicial firmness in the most outrageous cases and always a peril for the previously tarnished.

Of course, all of this comes too late for Mr. Lee, as American jurisprudence abhors the ex post facto imposition of new criminal punishment for prior acts. Nonetheless, our government in Albany has finally acted to protect one of New York’s greatest assets, its artists, who are no longer subject to the caprice of businessmen who treat the loss of a painting like a bad investment in a barrel of oil or a bushel of corn. Everybody- well, almost everybody- knows that New York City’s vivacity emanates from the young people who come here to share their creativity with the world. How much longer could New York be called “the art market capital of the world” if the law couldn’t protect vulnerable artists?

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About mcculloughllc

Michael McCullough has extensive experience in art, cultural heritage, and international trade matters. He is a former associate counsel to Sotheby's worldwide where he advised the company on the sale and financing of fine art, the decorative arts, cultural property, antiques, jewelry and special collections. Mr. McCullough is credited with the development and implementation of global policies and procedures related to the acquisition for consignment and sale of some of the greatest artworks in the world. Mr. McCullough is also experienced in U.S. Customs regulations, international trade agreements, export controls, economic sanctions constraints, anti-corruption rules, U.S. Fish and Wildlife regulations, and other government agency requirements. Mr. McCullough has represented clients before U.S. Customs and Border Protection, the Department of State, Immigration and Customs Enforcement, the U.S. Fish and Wildlife Service, the Food and Drug Administration, the United States district courts and the Court of Appeals for the Second and Fourth Circuits.
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One Response to Writing a Wrong

  1. Naoko Inoue says:

    Nice article. I enjoyed reading it.

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