Chen on Fiduciary Duty and Deaccession

Sue Chen (United States Court of Appeals for the Tenth Circuit) has posted on SSRN her article entitled Art Deaccessions and the Limits of Fiduciary Duty, 14 Art Antiquity & Law 103 (2009).

Art deaccessions prompt lawsuits against museums, and some commentators advocate using the stricter trust standard of care, instead of the prevailing corporate standard (business judgment rule), to evaluate the conduct of non-profit museum boards. This Article explores the consequences of adopting the trust standard by applying it to previously unavailable deaccession policies of prominent art museums. It finds that so long as museum boards adhere to these policies, their decisions would satisfy the trust standard. This outcome illustrates an important limitation of fiduciary law: the trust standard evaluates procedural care but cannot assess deaccessions on their merits. Yet this limitation, far from undercutting the trust rule, balances judicial review with protecting boards’ management discretion. This article ventures beyond formalist analysis of fiduciary duty and examines the non-legal, substantive rules governing art deaccessions. It argues that complemented by non-legal rules, the trust standard provides the best framework for adjudicating deaccession lawsuits because it ensures judicial scrutiny of deaccession procedures while leaving appraisal of deaccessions’ merits to museum professionals and the public they serve.


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Navigating the Deaccessioning Crisis

I have posted on SSRN a working manuscript of my piece Navigating the Deaccession Crisis.

I’d like to acknowledge my cohort of arts bloggers who have looked in terrific detail at many aspects of the issue, and the piece is far richer for their insights. In particular, Donn Zaretsky at the art law blog; Lee Rosenbaum at CultureGrrl; Tyler Green at Modern Art Notes; Sergio Muñoz Sarmiento at the Deaccessioning Blog; Richard Lacayo at Looking Around; and many others.

My proposal has three parts. First, the unnecessary restriction on deaccession proceeds should be eliminated. Second, when an important work of art is deaccessioned, other museums should be given an opportunity to purchase a work – to keep it in the public trust or its region – in much the same way the United Kingdom and other nations regulate the export of works of art. Finally, when any museum is considering a deaccession, it must provide reasons for the sale and publicize the decision to allow for public comment.

My thinking on deaccession first took shape in the wake of the controversy which surrounded the proposed sale of this painting, Thomas Eakins’ Gross Clinic, back in 2006. Why so much anger over the sale of a painting people weren’t seeing? Are there inconsistencies in the American Museum community with respect to deaccession and the acquisition of potentially looted antiquities? Can the process be streamlined? Will it happen more often? I sought an answer to these questions in the piece, and I’d be much obliged as always to hear any thoughts or reactions.

Here is the abstract:

A deaccession crisis confronts the American Museum community. Deaccession of art occurs when a museum decides to sell or dispose of a work of art. The crisis stems not from the practice itself – though there are indications deaccession will occur with increasing regularity. Rather the curious mixture of trust and estates law, state law, tax policy, nonprofit governance, professional guidelines, and doctrines governing deaccession all combine to form a body of rules which lack clarity and often conflict. These general and ephemeral standards preclude reasoned appraisal of whether any given sale may benefit the public. More care should be taken when crafting the rules governing our collective cultural heritage.
This article attempts to define the public interest in works of art, and provide a framework to guide in the deaccession of works of art to ensure those sales do in fact serve the public interest. The decision to sell works of art should be taken with care; but the current rules lead to a number of pernicious consequences. They have caused the loss of works from the public trust, the closure of museums and unnecessary legal battles.
Current guidelines require that deaccession proceeds be used only to purchase more art; however this rule appears to be a product of one high-profile scandal involving New York’s Metropolitan Museum of Art. To assist donors, museum directors and state Attorney Generals, this article proposes three changes. First, the unnecessary restriction on deaccession proceeds should be eliminated. Second, when an important work of art is deaccessioned, other museums should be given an opportunity to purchase a work – to keep it in the public trust or its region – in much the same way the United Kingdom and other nations regulate the export of works of art. Finally, when any museum is considering a deaccession, it must provide reasons for the sale and publicize the decision to allow for public comment.
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Deaccessioning in the UK (UPDATE)

The Southampton City Council has decided to sell parts of its permanent collection, including Rodin’s Crouching Woman, pictured here, and Alfred Munnings’ After the Race.  The decision was announced in July, but nobody really noticed.

Charles Saumarez Smith reports on the sale for the Art Newspaper, “[E]veryone in the museum world is aware that attitudes towards so-called de-accessioning are shifting in favour of allowing museums, in certain carefully defined circumstances, to consider the possibility of sales. It is, nevertheless, worth asking whether or not it is right that sales from one of Britain’s more significant regional art collections can reasonably be ignored.”

The works could raise upwards of £5m, and only 200 works in the 3,500 piece collection can be displayed at one time. What will the funds be used for?  They will help to construct a £15m maritime museum commemorating the sinking of the Titanic.  Saumarez Smith asks the pointed question:

[I]s it sensible for Southampton town council to break trust with generations of previous town councillors, who have diligently and systematically and with a great sense of civic pride built up one of the best and most impressive public collections of works of art in the country to sell some of those works in order to celebrate the sinking of the Titanic?

Perhaps not, but if we were to apply the current rules of the AAMD to this sale, the sale would be perfectly acceptable would it not?  These works do not fall within the scope of the Southampton’s collection.  In July, Councillor John Hannides, the Culture head said these works said “The Munnings has not been seen in Southampton for quite some time and that also goes for the other items too.  While they have been on display on occasions they are not central to the collection.”  The good news for critics of this sale?  These works may be purchased by private individuals, but they won’t leave the UK if they satisfy the Waverley Criteria, giving British cultural institutions an opportunity to pre-empt any sale abroad.

Tomorrow I’ll post a working version of my piece on Deaccessioning, which encourages American museums and States to adopt a similar approach. 

De-accessioning and responsibility in the UK: Why Southampton is wrong to sell works of art to fund a Titanic museum  [Charles Saumarez Smith, The Art Newspaper from issue 205, September 2009, Published online 6 Sep 09]


Donn Zaretsky notes that I may be wrong about whether the AAMD would permit the sale:

I don’t think that’s right. Apparently the sales proceeds will be used to help “construct a £15m maritime museum commemorating the sinking of the Titanic.” Remember, under the AAMD approach, there is only one thing you can do with the proceeds from sales of art (buy more art); you can’t go and build a Titanic-commemorating museum. What’s more, from an AAMD point of view, it doesn’t matter whether the works “fall within the scope of the collection” or not. You can sell work that falls right square in the middle of your collection and that’s okay, just so long as you use the proceeds to buy art. But if you want to use the proceeds for any other purpose, that’s forbidden, even if the work no longer falls within the scope of the collection.

He’s right of course if the funds are used just to construct a new museum.  However if these funds are used to purchase works of “art”, a slim likelihood perhaps given that the museum is focusing on the Titanic.  But if the museum purchases artifacts from the Titanic that could be classified as “art” then the sale would be permissible under the guidelines, in the same way the Albright-Knox shifted its focus to contemporary art.  But of course the funds from deaccessioning must be made “only to acquire other works of art—the proceeds are never used as operating funds, to build a general endowment, or for any other expenses.”

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More on the Rose

Via the Art Law Blog I see that Alana Abramson has an update on the Rose Art Museum lawsuit in the Brandeis University Student Paper:

The date of the first hearing regarding the lawsuit filed against the University by three members of the Rose Art Museum Board of Overseers and the deadlines for filing motions of dismissal and preliminary injunctions were set at the case management conference that took place Tuesday, Sept. 1, according to University outside legal counsel Thomas Reilly.

The motion to dismiss a case or to file a preliminary injunction, an injunction that takes place before the verdict is determined, must be filed on or before Sept. 15, according to a schedule provided by Jill Butterworth, deputy press secretary for Massachusetts Attorney General Martha Coakley. The first hearing is scheduled for Oct. 13, and the deadline to oppose the motion to dismiss the case is Oct. 6. 

The lawsuit was filed by Rose overseers Jonathan Lee, Meryl Rose and Lois Foster July 27 in the Supreme Judicial Court of Massachusetts and was subsequently transferred to the Suffolk Probate Court. The lawsuit seeks to maintain the Rose’s collection by stating that the University’s decision to close the museum and sell its paintings would violate both the museum’s ethical codes and Brandeis’ commitment to the Rose family to maintain the museum solely as a public museum.

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University of Iowa to Consider the Future of its Art Museum

From the press-citizen:

The University of Iowa has established an envisioning committee to consider options for the future of the UI Museum of Art, the university announced Tuesday.  The art collection was removed from the museum because of the 2008 flood, and then UI officials decided the facility was too vulnerable to ever house art again. The collection is scattered with some pieces on UI campus but most, including the famed Jackson Pollock “Mural,” are at the Figge Museum in Davenport.  UI President Sally Mason, who established the committee, said in an interview last week that it was too early to say what might come from the committee but she asked its members to keep an open mind.  “I want people to think about all of the possibilities,” Mason said.  Carroll Reasoner, UI interim vice president of legal affairs and general counsel, will serve as chairwoman of the 19-member committee, which includes faculty, community members and students and will be assisted by a five-member advisory committee.  The committee will have its first meeting at 1:30 p.m. Friday in Jessup Hall on the UI campus.  Mason said last week she expects a preliminary report from the committee by Christmas.  UI officials don’t yet know how to pay for a new museum, which makes it different from virtually every other major flood recovery project on campus.  The Federal Emergency Management Agency will cover 90 percent of renovation costs for most projects and to rebuild the Hancher Auditorium complex and Art Building complex, which are eligible to be relocated under FEMA guidelines.  However, the old Museum of Art facility was not damaged severely enough to be eligible for FEMA funds for relocation. That leaves UI on its own in planning and paying for a new home for the art collection.  “That’s been our assumption. It will be left to us to determine its fate and its future,” Mason said.

So, we have a situation where it is not possible to return the works to the original, flood-prone museum; and paying for a new museum will be difficult.  One thing I think the committee should consider is selling a few of the works to another public institution, and using the funds raised to keep much of the art at UI.  But that of course would violate the ethics rules of the AAMD and the AAM.  I have a long article which I’m currently trying to place in law reviews where I criticize the default rules governing deaccession; which I hope to post in the coming days, so I’ll have a lot more to say on deaccessioning generally.  But in terms of this situation, I don’t see how the current rules make it easier for the UI to fulfill its mission.  Deaccession is never the ideal response, but what other options are left?  Hope for a wealthy benefactor?  Increased funding?  Store the works until a solution is found?  Loan them to other institutions? 

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Fractional Gifts May Return?

Donn Zaretsky gives some helpful background on the potential return of fractional gifts of works of art to art museums.  The end of the practice sharply curtailed the donations received by museums, and were just one in a number of recent measures which has made it difficult for museums to find traditional revenue streams. 

He notes:

The new bill focuses on these two issues [that the gift be completed in 10 years, and ensuring donors cannot unfairly use the increase in value of a work of art after the initial contribution], and basically tracks the “agreement in principle” among members of the Senate Finance Committee that was described in a New York Times article in July of last year:

First, it was reported that “amendments hammered out by aides to Mr. Schumer and Mr. Grassley would lengthen [the 10-year donation period] to 20 years” — and that’s exactly what the new bill provides.

And second, it was said that Grassley appeared “willing to allow donors to claim deductions for subsequent donations that reflect increases in the value of the portion of the artwork they still own.” That is also now reflected in the bill.

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Arts Funding Cuts at Universities

Patricia Cohen has an article for the New York Times on the current funding cuts plaguing Universities across the US.  It speaks to the general trend plaguing arts funding in America, but indicates as well I think a potential tide of deaccessions across the country:

If you are looking for a sign of how strapped the University of California, Los Angeles, is for cash, consider that its arts and architecture school may resort to holding a bake sale to raise money. California’s severe financial crisis has left its higher-education system — which serves nearly a fifth of the nation’s college students — in particularly bad straits. But tens of thousands of students at public and private colleges and universities around the country will find arts programs, courses and teachers missing — victims of piercing budget cuts — when they descend on campuses this month and next.

At Washington State University the department of theater arts and dance has been eliminated. At Florida State University the undergraduate program in art education and two graduate theater programs are being phased out. The University of Arizona is cutting three-quarters of its funds, more than $500,000, for visiting classical music, dance and theater performers. Wesleyan University’s Center for the Arts, which supports four departments — dance, music, theater and visual arts — is losing 14 percent of its $1.2 million budget over the next two years. The Louisiana State University Museum of Art, one of the largest university-affiliated collections in the South, saw 20 percent of its state financing disappear. Other private and state institutions warn of larger classes, trimmed offerings, higher tuition and fewer services, faculty and visitors.

 Given this, I think we need to seriously ask whether the current set of rules for deaccessioning works of art are really ensuring the continued viability of the arts.  Why can’t a University decide to sell all or part of its art collection?  So long as it remains on display or available to researchers in the public trust, who is harmed?

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How Art Enters the Public Trust

One of the difficulties plaguing the current state of deaccession deaccession is the idea that works of art enter the public trust, which often leads to a variety inconsistent restrictions on their disposal. But one under-appreciated aspect is the haphazard way in which many of those works actually enter the public trust. One example is the difficulty plaguing Donald Fisher—founder of the gap and San Francisco Resident—and his impressive collection of contemporary art. Fisher had considered opening a new museum in San Francisco, but his first choice, the Presidio in San Francisco was criticized by preservationists and appears to have been abandoned.

Julie Anne Strack for the L.A. Times has more details:

Now the fate of his collection, which includes about a thousand works by such artists as Andy Warhol, Roy Lichtenstein and Alexander Calder and is conservatively valued in the tens of millions of dollars, has San Francisco’s art community fearful that the city could lose an irreplaceable cultural treasure.

“It would be an absolute crime if it left San Francisco,” said Dede Wilsey, president of the board that oversees the De Young and Legion of Honor, two of the city’s major art museums. “No one could amass that collection now. They couldn’t afford it, even in a recession.”

The collection, housed in a warehouse and at Gap headquarters in San Francisco, is open to scholars, and Fisher routinely loans pieces to museums. But until an agreement is reached, most of it will stay behind closed doors.

“You could very easily teach the history of art over the past 50 years with this collection,” said Hilarie Faberman, a curator at the Cantor Arts Center at Stanford University. Faberman said nearly every piece deserves to be displayed.

The collection, curators say, will probably be pursued by museums around the country.

Fisher would prefer to keep the art in San Francisco, said spokesman Alex Tourk, who added that Fisher and his family have received hundreds of e-mails from residents who don’t want the collection to leave.

Given the jockeying for the collection which appears to be taking place, how much consideration will be given to how or when the collection may be sold? None I’d imagine, as any institution which may conider such a move would surely fall far down Fisher’s list. What about how the institution hopes to fulfill its obligations to the public? That likely receives little attention as well, as most museums operate under the assumption (which has been proved wrong) that they will exist in perpituity. But plans go awry, and communities change. A city which once supported a vibrant arts community may no longer be able to; or may shift focus to the next wave of contemporary art. This kind of brazen optimism and shortsightedness is one of the primary contributing factors to the current state of deaccession decisions currently plaguing arts institutions. Instead the primary concern now is how to “retain” these works in San Francisco.

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Tough Times at Brandeis

Brandeis University, under a great deal of criticism for its announced decision to sell many of the works in its Rose Museum has announced it will halt retirement payments beginning in July.  It is a sad day when an institutions decides to shutter a museum, but this decision really highlights the grim financial reality facing the University. 

From Tamar Lewin’s piece in today’s NYT (via the Art Law Blog): 

While universities across the country have taken a wide range of actions to confront their financial problems, including layoffs and the suspension of capital projects, freezing contributions to retirement accounts is rare. Financially troubled corporations have been taking such action, but faculty and staff members at colleges and universities have traditionally enjoyed stable, and generous, benefits — and expect no less. 

“There is this perception that the nonprofit world is maybe a gentler, kinder world than corporate,” said Roland King, vice president for public affairs at the National Association of Independent Colleges and Universities. “So some people seem to perceive this as a breach of faith, especially since many people go into nonprofit work at less salary, because the benefits are so good. But we are absolutely at a point in this economy where these sort of things have to be on the table.” 

Suspending Brandeis’s contribution to retirement plans from July 1, 2009, through June 30, 2010, will cover $7.4 million of its projected $8.9 million deficit, the university’s president, Jehuda Reinharz, said in an e-mail message to the faculty and staff. In the message, Mr. Reinharz said he had planned to share the news of the suspension at the end of the week, but was pre-empted when it was announced in the May 19 edition of the student newspaper, The Justice.

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Montclair Art Museum to Deaccession 50 Works

James Panero reports in the WSJ on the decision by the Montclair Art Museum in Montclair NJ to deaccession 50 works from the museum’s permanent collection:

[T]his plan will include the sale, or “deaccession,” of 50 works from the museum’s permanent collection, among them a Jackson Pollock drawing valued at $300,000 to $500,000 and several Hudson River School and American Impressionist works with estimates ranging from $25,000 to $300,000, according to a prospectus prepared by Christie’s. The auction house believes the sales will generate between $2.9 million and $4.3 million for the institution, which says it will use the funds for future acquisitions. Presented as curatorial housekeeping, but in fact motivated by financial exigencies, the Montclair sales — if allowed to proceed — will set another sorry example of an institution cashing out on art in the public trust. . . . 

 Now, as its overall endowment has dipped 25%, to $6 million from $8 million, the museum risks not having enough cash on hand to back its loans. That’s where this deaccession comes in — to raise cash to satisfy the requirements of its bank bonds. What’s most troubling is that nothing on the books is designed to stop it, even though Montclair is liquidating art in its permanent collection to raise the aggregate collateral for its loans — precisely what AAMD claims to oppose.

Lora Urbanelli, the director of the museum gives the case for the deaccessioning in this case:

We took out tax exempt bonds at a certain time in our history. And when you do that — we are diligently paying them off — but whenever you do that, as part of the agreement, you agree to have a certain amount on hand in an endowment fund. At times when our endowment is flagging, we go below that line. So this is a creative way to keep the endowment full and to stay above the water line to grow our endowment for acquisitions — just so we are in the good graces with the bond covenants. All the bank wants to know is that the endowment is a healthy one for the size of the institution. There’s nothing untoward. There is nothing to hide. The deaccessioning that we’re about to do has been more or less in the works for years. What we’re doing now is considering an acceleration of a process. . . . The AAMD sees no problem with the way we are handling this situation.

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