Two Experts on Art Law: Franklin Boyd and Sarah Conley Odenkirk

by Franklin Boyd on January 28, 2015 · 1 comment Experts + Interview

Franklin Boyd, Esq. Photo credit: Marsha Owett

Franklin Boyd, Esq. Photo credit: Marsha Owett

[Ed note: “Two Experts On…” is a new periodic interview series in which we’ve asked a maven in a creative field to talk shop, in nerdy detail, with a fellow specialist. 

This edition, two art lawyers discuss the behind-the-scenes details of art legalities, art world ethics, and ethical gray areas. The interview comes from lawyer Franklin Boyd, founder and director of the art advisory service Boyd Level and a faculty member at the Sotheby’s Institute of Art. Boyd also recently authored the Level Rights contract, a negotiated resale royalties (NRR) agreement for art sales; NRRs allow artists, collectors, and dealers to arrange a one-time resale royalty for artists and dealers. Boyd interviews fellow art attorney and author Sarah Conley Odenkirk.

This interview was conducted in the fall of 2014.]

Two art lawyers, one based in New York and the other in California, talk about the increasing desire to control the behavior of buyers and sellers, the current state of resale rights for artists and the single best thing artists can do for themselves. Interview conducted, condensed, edited and supplemented with sidebars by Franklin Boyd.

Franklin Boyd: We hear a lot about “power in the art world” and “art and money,” but the critical element that everyone seems to be looking for these days is really control. Lawyers typically have a lot to say on this topic; we might have opinions on price, but at least as part of my legal practice, that’s not the service that I’m providing.

Sarah Conley Odenkirk: Right!

1.Rights of First Refusal (“ROFRs”) and Rights of First Offer (“ROFOs”), two types of “preemptive rights,” are common in deals involving real property or shares for a closely held company. However, in the case of personal property, e.g. a work of art, courts have chosen not to enforce the preemptive rights of a party if the purpose is actually to prevent the other party from transferring the property (or if the duration is too long or price determination harms the owner of the property). The leading case on this involving a work of art was decided by the New York Court of Appeals in 1992 (Wildenstein & Co. v. Wallis, 79 N.Y.2d 641). There the court held that the ROFR was enforceable because the parties were regular art market participants, and the terms of the ROFR were reasonable in duration (30 days) price (equal to the offer from a 3rd party) and purpose (to compensate Wildenstein for a previously returned sale).

Boyd: Just this morning, I was discussing how the online auction site Paddle8 is attempting to shift the traditional control of an auction transaction. According to their terms of business, there are certain lots being offered for sale that require, for a year after the sale, that the purchaser offer it back to the artist or seller if the purchaser wants to resell it. And the artist or the seller has the right to repurchase the work at fair market value. 1

Odenkirk: Right, that’s something that’s actually more and more frequently included in gallery contracts as well.

Boyd: Go on.

Odenkirk: On the one hand, it makes some sense from a dealer’s perspective to be able to control the value of the artwork. When you’re representing an artist, I understand the desire to control the market and the value of the work; but of course you’ve got first sales doctrine issues. And of course as we know a lot of these deals are all based on relationships. So are you damaging your relationship with your collectors who are your blood flow by restricting the way in which they can enjoy and use the work?

Boyd: Exactly, and I completely agree that it feels like it makes more sense coming from a dealer than in the auction context; what I find really fascinating in the Paddle8 terms– and here we can get really nerdy– is the use of the conjunction “or”; because a purchase has to offer the work back to the artist or the seller, and, at least on Paddle8, the sellers are frequently not for profits hosting benefit auctions.
I was looking at a lot being sold by The Kitchen which has this restriction on it. I find it interesting, and also a little inconceivable, that somebody would offer it back to a not-for-profit, and that the not-for-profit
would actually be in a position to purchase it.

2.“Proper” purposes of a not for profit.

Odenkirk: And, beyond the question of whether a nonprofit has the money to purchase it, the question would also be whether that is an appropriate activity for the nonprofit to engage in. 2

Boyd: Exactly.

Odenkirk: And the other thing that I would be curious to know is what’s Paddle8’s reason for including that clause….what is the interest that they’re trying to protect there?

Boyd: As we know, the most overused word of the summer was ‘flipper.’ It seems to logically respond to some of the anxiety that is surrounding the activities of flippers and this idea that artwork falls into “the wrong hands”, particularly through benefit auctions.

3.Under New York State’s Not For-Profit Corporations Law, a not for-profit may only be formed for certain purposes. In the case of New York arts organizations (formed prior to July 1, 2014), most are formed under Section 201 as “Type B” corporations that may only exist for one or more of the following non-business purposes: charitable, educational, religious, scientific, literary, cultural or for the prevention of cruelty to children or animals. The key here is the “non-business” aspect, which might be called into question if the organization were to use funds contributed to it for the purposes of repurchasing art works previously sold.

Odenkirk: Well, if it’s an altruistic effort on the part of Paddle8 on behalf of artists, then that’s great. But from a truly financial standpoint, it seems as though auction houses shouldn’t care if people are flipping. And then, in fact, from the standpoint of Paddle8 trying to establish itself as a serious auction competitor,
they would benefit if an artwork has increased in value, by whatever means, if it has a connection to a Paddle8 auction.

Boyd: Speaking of altruism, as we know, the big news this week [10.31.2014] is that the ninth circuit has agreed to hear the appeal on the resale rights case in California.3 I’m very curious to hear your take, and how people in California are feeling.

Odenkirk: In general, I have not heard a lot of support for resale royalties in California– and that’s been a constant among artists, galleries, auction people, and people within and outside of the arts. There just doesn’t seem to be a lot of support for it. For all those typical arguments you hear: it only benefits the super-successful artists, it’s not well implemented, it ends up hurting the market in California.

I am definitely of the opinion that there should be more of an effort to promote moral rights in the United States, so I’m more interested in seeing what happens at the federal level. Although I think that [the current version of the ART Act] is seriously flawed, because it only applies to the auction houses, and it does not apply to dealers. That seems to be a very unfair application of the resale royalties concept. So, while I don’t know what the court is going to do, I definitely think that there’s a high likelihood that they’re going to find that it’s not enforceable.

4.In 1976 California enacted Resale Royalty statute requiring the payment of 5% of the gross sales price to any artist who is a US Citizen or California resident upon the resale of their work either in California or by a California resident for the life of the artist plus 20 years. The Act was largely ignored by art market participants and few artists have ever received royalties. In 2011 certain artists and their estates filed lawsuits against Christie’s, Sotheby’s and E-Bay for the alleged non-payment of the statutory royalty. In 2012, a district court judge declared the Act unconstitutional because it infringed upon Congress’s exclusive right to regulate interestate commerce — or, said differently, the fact that the law extended to sales outside of California by California residents (e.g. at auction in New York) was unconstitutional. The original plaintiffs appealed and the federal appeals court for the region including California, the 9th Circuit, recently heard oral arguments from both sides.

Boyd: It’s interesting that you bring up moral rights4– are you thinking of rights of paternity, other rights beyond just resale rights?

Odenkirk: You know, I think that VARA5 is a very poorly-written piece of legislation, and so I think a better-written moral rights provision in our copyright law would be really good. I don’t think that I would go so far as French law, where the artist can take back the work at anytime and decide to change it, or decide if it’s no longer worthy of being viewed. I think that there are some extremes. You see a lot of problematic issues in Europe, for example, when you look at the extreme application of moral rights in terms of authenticity. I wouldn’t want to see our system go to that extreme, but I do think that a stronger protection of moral rights against destruction and damage of the work is one thing. With resale royalties, I would prefer to see more of a contractual setting than in legislation, but I do think that often people need a little bit of help. It needs to be more ingrained, and I’m not sure if you’re going to see a voluntary obligation of resale royalties by the people who are currently selling artwork.

Boyd: Well, you know that I’m using my best efforts to make resale rights a standard contractual option, so I certainly agree with you on the desire to see resale rights happen contractually6!

…In terms of the gallery-artist relationships, and again thinking about it from the current zeitgeist of trying to control artists’ markets, what are you seeing in your practice in terms of shifts or problematic areas?

Odenkirk: Well, I don’t like the sentiment behind flipping…that’s not how I enjoy art or think art should be treated… but I also think that we can’t have it both ways. And so we talk about art being a “commodity” (you and I talked about applying contracts), so we definitely want [sales of art] to be treated in a very business-like sense; so, if you’re going to treat something in a business-like sense, it’s going to be susceptible to speculation and treatment as a commodity.

5.In addition to copyright, creators are also afforded “moral rights” by some jurisdictions, specifically Europe. Although the exact bundle of moral rights varies from system to system, in their typical European sense the two most prominent include the right of attribution (to be correctly identified as the author), and the right of integrity (to prevent the alteration, destruction, mutilation other derogatory action toward a work which would be prejudicial to the author’s honor or reputation). In France, for instance, these rights are perpetual and can be exercised by the artist’s appointed heirs/representatives in perpetuity.

So I understand artists’ concerns in treating their work as a commodity; we’ve already seen some pushback from artists who are purposely damaging the ability to flip their work [Ed note: read: Wade Guyton]. But with galleries– and this is going to sound harsh– I think that if there is a profitable opportunity, they don’t want to miss out on it…which is certainly understandable. But in order to take advantage of that and then restrict the ability of collectors to essentially own and manage their own collection, I think that that creates a different set of issues.

So, anyway I would say that this conversation is one of the big issues for dealers.

Boyd: Yes, and the other big one swirling around is about foundations’ authentication boards.7

Odenkirk: Oh, absolutely. That is definitely a big problem, certainly for auction houses and for anybody who’s in the business of dealing. I was just commenting the other day how we’ve had more and more stories about forgeries, and frauds, and how “half the art that’s out there is fake”. It doesn’t seem to be necessarily hurting business that much, but it does tend to favor those who are going to be collecting emerging living artists which, of course, feeds into the whole flipping frenzy. Because you’ve now got the emerging work that you can create a buzz around, and that ends up being a much more reliable authenticity market, even if you’re talking about a less-reliable financial situation.

A supposed Jackson Pollock painting sourced from art dealer Glafira Rosales, who's been accused of selling fake Modernist paintings many times over

A supposed Jackson Pollock painting sourced from art dealer Glafira Rosales, who’s been accused of selling fake Modernist paintings many times over. (Image courtesy of the New York Times)

6.VARA refers to the “Visual Artists Rights Act” adopted by the United States in 1990. While it includes some of the moral rights concepts, it does not go as far as the provisions contained in the Berne convention and has been inconsistently applied since its adoption.

Boyd: Of course, if you saw it on the artist’s Instagram feed, you’ll feel pretty safe that they’ve created it.

Odenkirk: Right, or if you can meet them at a show. So you avoid those authenticity issues as well as any additional moral rights issues [that an estate might try to impose, such as denying authenticity]. Even though, of course it’s also not reliable, there are several artists who’ve denied their own work. But that’s definitely the minority.

Boyd: And of course, one thing that I hear and read over and over again, from the popular press, to my students, is that the art market is an “unregulated market.”

Odenkirk: Well it’s certainly not unregulated, but there’s definitely more of a need for “buyer beware” – but you still can’t commit fraud. Art world transactions are subject to the same rules of any purchase and sale transaction. So I would say that while it’s certainly regulated, it definitely does have a wild quality to it because it’s unpredictable. But I wouldn’t say that “unpredictable” is the same as “unregulated”.

7.One alternative to legislatively mandated resale rights is to have artists and collectors agree to share proceeds via contract. The lawyer Robert Projansky and artist Seth Siegelaub introduced a widely disseminated (if not widely used) model contract in [1971]. There has been renewed interest in the viability of contractual resale rights, ranging from a recent show at the Essex Street Gallery to the solutions for initiation and recording of contracts proposed by Level Rights/Xipsy.

Boyd: That’s a great distinction.

Odenkirk: But again, going back to the emerging market, artists are looking at alternative ways to market their work, [purchasers] are looking for deals, people want to discover that next hot artist, or flip…. It does become a very loose and wild world.

Odenkirk: Right. I mean, it depends on what level of transparency you’re talking about– in the auction business, you’ve got more or less transparency depending on the nature of the structure of the organization behind the auction, whether you’re getting numbers and all that. There’s certainly an expectation of documented provenance. But when you’re talking about transaction transparency, it’s true that there aren’t regulations in place requiring the disclosure…

Boyd: …of who the irrevocable bidder is and who is backing the guarantee.

Odenkirk: Exactly. And even when you’re talking about the gallery world, there are a lot of middle people involved in those transactions, and it’s not always completely clear, because people want to do things on a handshake, how much discount is actually being applied here or taken there. And ultimately, although I’m not a huge proponent of free market politics in general, I do think that if you transact business in a dishonest way, it does bite you eventually. If it is discovered that the dealer has actually taken a greater commission than they originally agreed to, or due to the lack of transparency there’s been some dishonest or questionable behavior, I think that that does tend to come around.

8.A London Court recently required an intermediary dealer to disgorge $800,000 in what was determined to have been a commission received in violation of a fidurciary duty owed to the seller, even though there was a “net sales” contract and the intermediary did not have any direct contact with the seller. An excellent summary of the facts of Accidia Foundation v. Simon C. Dickenson Limited can be found here.

Boyd: It makes me think about situations in which sometimes you don’t know how many people are taking a commission.8

Boyd: I found myself having this exact conversation with a dealer the other day who knew that he wasn’t supposed to be getting the commission he was getting but had a lot of creative ways of justifying it. But I think he ultimately decided that he just needed to go back and tell his seller that he was actually able to do much better on the net price than originally stated. But I think there’s a real temptation, and because there’s the expectation that you’re not disclosing the name of the purchaser, that sometimes that you can kinda get away with it.

Odenkirk: Well, and you can, sometimes, but you know if people talk, it comes up pretty quickly, and people certainly talk in the art world… and collectors know one another, and they like to brag about their various transactions, and so it does come up. And I feel like in a lot of ways, it’s the same as in any business in terms of establishing yourself as a trustworthy player or not. Unfortunately, we have a number of untrustworthy players who are still able to access fabulous art and make those transactions happen. So people go into those deals knowing who they’re dealing with. It’s not as if they don’t know that that person has a reputation for dishonesty. If you want the work, or if you want that transaction, you sort of bite the bullet and do it anyway.

Boyd: And take your chances. What’s the best advice you can give your clients who are artists and collectors as an attorney?

Odenkirk: Well I [wrote] a whole book on that! [Laughing] The point that I always hammer back, whether it’s to students in class or the artist whom I’m advising is “communication.” I really feel like communication is the key, and it’s not just a matter of pushing people towards written contracts.It’s a matter of making sure that everybody is very clear about their own expectations and being able to articulate them. And I feel like that is an important concept all the way from the idea of creating conceptual work as an artist and communicating your intentions to your audience, all the way through the sales process and the actual business of doing art. So I feel like communication, while perhaps not solely a legal function, is really the key to making sure that not only the production and enjoyment of art is maximized, but also the business process involved in allowing artists and dealers to survive is greatly enhanced by good communication.

Boyd: That’s very well said. Certainly my experience with going over contracts with two parties is that it does help set those expectations. I think that’s the other key word– everybody thinks that they’re using the same language, until they have to decide who’s really paying for shipping, how discounts are going to be applied. So clear communication in advance makes sure that expectations are aligned.

Odenkirk: And not assuming anything. It’s when those assumptions are made that you see the relationship, and just the ability to communicate, falls apart. And, of course, it’s also a way of justifying my contract nerdiness. [Laughing]

Boyd: Well I love that the title is “A Surprisingly Interesting Book on Contracts”.

Odenkirk: I do hope that’s interesting….A number of people asked me when I published the book, “Why did you put all your forms in there? Aren’t you giving away the store?” It was because I felt so strongly that the forms are not why people hire me, that’s not why people want to talk to me about these issues. It’s because of the ability to help mediate the communication that I’m brought in, not for the paragraphs that I drafted over the years. Since I’ve done the deal, somebody has my contract anyway, it’s out there. And that’s not really the key to practicing law.


Sarah Conley Odenkirk

Sarah Conley Odenkirk practices law in the area of fine art in Los Angeles, California for local and national clients.  She is a professor at Claremont Graduate University for the Sotheby’s Institute of Art’s Art Business Masters program where she teaches Art Law and Public Art.  Sarah is also organizing a week-long series of programs around art law for January 2015. She is the author of A Surprisingly Interesting Book About Contracts, and, in 2013, created a database containing executive summaries and underlying documentation for public art in private development policies and ordinances nationwide.

Sarah sits on the Director’s Council for UCLA’s Fowler Museum, on the board of FLAX Foundation, is a Council Member for Americans for the Arts’ Public Art Network, and is on the Exhibitions Committee for the Pasadena Armory.

Franklin Boyd

Franklin Boyd works at the intersections of contemporary art, finance and law. The founder of Xipsy, Level Rights and Boyd Level, she is the creator of the Negotiated Resale Right for Artists. Franklin also maintains a general commercial law practice with a concentration on matters related to contemporary art. She teaches art finance, market and law courses at the Sotheby’s Institute of Art and has served on the  boards of Art in General and SmartSpaces, both located in New York, and Zer01, headquartered in Silicon Valley. Franklin holds a BSFS from Georgetown University’s School of Foreign Service, a juris doctorate from NYU Law School and began her legal career at Cravath, Swaine & Moore after having worked in the General Counsel’s office of the Metropolitan Museum of Art in New York and for the State Attorney General of New York.

Essay series founded and edited by Whitney Kimball. For more “Two Experts,” follow the links below: 

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{ 1 comment }

JudithBraun January 30, 2015 at 8:42 am

I just ordered “A Surprisingly Interesting Book about Contracts”. Thanks.

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