Rothko Case
Encyclopedia
The Rothko Case was the protracted legal dispute between Kate Rothko, the daughter of the painter Mark Rothko
; the painter's estate executor
s; and the directors of his gallery, Marlborough Fine Art. The revelations in the case of greed, abuses of power and conspiracy by financial interests in the art world
were described by the New York Supreme Court
as "manifestly wrongful and indeed shocking," serving as a cautionary tale for both artists and their gallerists.
contracts with the artist, restoring hundreds of paintings to the artist's estate, removal proceedings to compensate the estate for paintings not returnable to it to the extent of millions of dollars, election proceedings litigating the rights of election by the children against an excessive charitable distribution, contents proceedings construing Mark Rothko's will as to the meaning of the "contents" of the family residence willed to his widow and to her estate and later by the widow's will to Rothko's children, and valuation proceedings for valuing the art, assessed costs, fees, and taxes.
, leaving all of his residual estate to the non-profit Rothko Foundation which Rothko organized shortly before his death.
Five months later on February 21, 1969, Rothko entered into an agreement with Marlborough A.G., a Lichtenstein
corporation with international galleries, which provided in part that he agreed "not to sell any works of art for a period of eight years, except to Marlborough A.G. if a supplementary contract is made."
One year later Rothko died by suicide on February 25, 1970, leaving an estate consisting primarily but not entirely of 798 of his paintings. Rothko's wife Mary Alice died of a stroke six months after her husband's demise. Rothko's will was admitted to probate the month following his death, naming his estate executors: Bernard Reis, who had drafted Rothko's will and who became a Marlborough Gallery New York director the month before Rothko died; Theodoros Stamos
, a friend and fellow artist represented by Marlborough New York starting in 1971; and Morton Levine, an anthropology professor, unconnected with Marlborough but who had been Rothko's son Christopher's guardian for a short time.
Shortly before his death in 1970, Rothko made gifts to his children of certain key paintings in his possession in an effort to provide his children with financial security, since he believed that key patrons would pay higher prices for the works following his death. However, after Rothko died, his children were notified by the Marlborough's founder, Frances Kenneth Lloyd, that under the terms of the agreement made with the gallery in 1966 and renewed in 1969, the gallery owned all of Rothko's paintings.
Following Rothko's death the three executors for the estate agreed to sell 100 works to Marlborough for a total of $1,800,000 while a further 698 works were consigned to the gallery for sale at a fixed commission of 50%. However the executors paid only $200,000 upfront to the estate. In the year after Rothko's death the value of his work more than doubled while early works were selling at auction for over $80,000.
In 1971 Kate Rothko sued to release the estate from the sale agreement and have the paintings returned to the family. The legal proceedings revealed that when still a struggling artist with a young family, Rothko agreed to a deal with the gallery in which all of his paintings would be sold through the gallery in exchange for a set monthly fee. Such terms were not unheard of, as Pablo Picasso
had had a similar deal with his gallery in the 1920s.
It emerged from the proceedings that the estate executors and the gallery defrauded Rothko and his estate through various methods of self-dealing. Among other wrongful acts, the gallery had been filtering payments for Rothko's works through accounts in Switzerland
and Liechtenstein as part of an effort to ensure the paintings were undervalued during Rothko's lifetime — in the 1960s this led the artist to vastly underestimate the value of his works, directly resulting in his agreement to consignments of dozens of paintings to the gallery and collectors without appreciating his works' full value.
The trial record revealed that the gallery had been stockpiling the undervalued works instead of selling them in order to ensure both a low market saturation and a high Marlborough inventory, anticipating a heightened value in the market after Rothko's death. Further, the 100 paintings 'sold' after Rothko's death by the estate executors through Marlborough were not sold to bona fide purchasers, but were instead retained by the gallery which shuffled the sale monies through its accounts in Europe, and which then quickly 're-sold' the works to actual purchasers for 5 to 6 times the value declared by the estate. Many works were sold this way by the Marlborough with the complicity of the executors despite the court's injunction against selling any works while the case was unresolved and still before the courts.
Ultimately, certain directors at Marlborough were convicted of defrauding the Rothko family, and in 1975, the court ordered the gallery to pay over $9 million in damages and costs, and also ordered the gallery to return 658 Rothko paintings it still held. Marlborough disputed the return of the paintings and was able to prevail as to those works it had sold during the proceedings in defiance of the court's orders to the contrary. Those works remained in the hands of collectors, including Rothko's 1953 oil on canvas painting, Homage to Matisse, which later sold at public auction for US $22.4 million.
of 1954 (IRS code) for the years 1970 through 1974 in the total amount of $18,582,500, and additions to tax under sections 6651 and 6684 for the same years in the respective total amounts of $518,125 and $2,112,500. Reis' estate (he was dead by that time) lost its summary judgment motion to make the ruling go away.
Despite Theodoros Stamos protestations that he had done nothing wrong, the Tax Court also ruled against him for liability for various self-dealing excise taxes under IRS code section 4941 for the years 1970 through 1976 in the total amount of $19,407,500, and additions to tax under sections 6651(a)(1) and 6684 for the same years in the respective total amounts of $724,375 and $2,957,500. Stamos also lost his appeal.
Marlborough A.G.'s founder Frank Lloyd paid a third of the $9.2 million award to the Rothko children as a fine against Marlborough for violating the court's injunction against the sale of any further paintings before a final ruling or settlement. The disgraced Lloyd is not mentioned as active after 1972 on the gallery history page on Marlborough's website. Lloyd died in 1998 at age 86.
Mark Rothko
Mark Rothko, born Marcus Rothkowitz , was a Russian-born American painter. He is classified as an abstract expressionist, although he himself rejected this label, and even resisted classification as an "abstract painter".- Childhood :Mark Rothko was born in Dvinsk, Vitebsk Province, Russian...
; the painter's estate executor
Executor
An executor, in the broadest sense, is one who carries something out .-Overview:...
s; and the directors of his gallery, Marlborough Fine Art. The revelations in the case of greed, abuses of power and conspiracy by financial interests in the art world
Art world
The art world is composed of all the people involved in the production, commission, preservation, promotion, criticism, and sale of art. Howard S. Becker describes it as "the network of people whose cooperative activity, organized via their joint knowledge of conventional means of doing things,...
were described by the New York Supreme Court
New York Supreme Court
The Supreme Court of the State of New York is the trial-level court of general jurisdiction in thestate court system of New York, United States. There is a supreme court in each of New York State's 62 counties, although some smaller counties share judges with neighboring counties...
as "manifestly wrongful and indeed shocking," serving as a cautionary tale for both artists and their gallerists.
Summary
The entire Rothko matter involved a few litigants, but many counsel with lengthy professional services, some of them over a period from 1971 to 1979. Proceedings included removal of the estate's original executors, setting aside the contracts those executors made with the Marlborough gallery, eliminating the rights of the gallery with respect to its inter vivosInter vivos
Inter vivos is a legal term referring to a transfer or gift made during one's lifetime, as opposed to a testamentary transfer ....
contracts with the artist, restoring hundreds of paintings to the artist's estate, removal proceedings to compensate the estate for paintings not returnable to it to the extent of millions of dollars, election proceedings litigating the rights of election by the children against an excessive charitable distribution, contents proceedings construing Mark Rothko's will as to the meaning of the "contents" of the family residence willed to his widow and to her estate and later by the widow's will to Rothko's children, and valuation proceedings for valuing the art, assessed costs, fees, and taxes.
Details
On September 16, 1968, Rothko executed a two-page will, drafted by and its execution supervised by his friend Bernard Reis, an unlicensed law-school graduate and Certified Public AccountantCertified Public Accountant
Certified Public Accountant is the statutory title of qualified accountants in the United States who have passed the Uniform Certified Public Accountant Examination and have met additional state education and experience requirements for certification as a CPA...
, leaving all of his residual estate to the non-profit Rothko Foundation which Rothko organized shortly before his death.
Five months later on February 21, 1969, Rothko entered into an agreement with Marlborough A.G., a Lichtenstein
Lichtenstein
Lichtenstein is surname of:*Aharon Lichtenstein, noted Orthodox rabbi*Alfred Lichtenstein , an American philatelist*Alfred Lichtenstein , a German writer*Bill Lichtenstein, journalist and producer...
corporation with international galleries, which provided in part that he agreed "not to sell any works of art for a period of eight years, except to Marlborough A.G. if a supplementary contract is made."
One year later Rothko died by suicide on February 25, 1970, leaving an estate consisting primarily but not entirely of 798 of his paintings. Rothko's wife Mary Alice died of a stroke six months after her husband's demise. Rothko's will was admitted to probate the month following his death, naming his estate executors: Bernard Reis, who had drafted Rothko's will and who became a Marlborough Gallery New York director the month before Rothko died; Theodoros Stamos
Theodoros Stamos
Theodoros Stamos , was a Greek American artist. He is one of the youngest painters of the original group of abstract expressionist painters , which included Jackson Pollock, Willem de Kooning and Mark Rothko...
, a friend and fellow artist represented by Marlborough New York starting in 1971; and Morton Levine, an anthropology professor, unconnected with Marlborough but who had been Rothko's son Christopher's guardian for a short time.
Shortly before his death in 1970, Rothko made gifts to his children of certain key paintings in his possession in an effort to provide his children with financial security, since he believed that key patrons would pay higher prices for the works following his death. However, after Rothko died, his children were notified by the Marlborough's founder, Frances Kenneth Lloyd, that under the terms of the agreement made with the gallery in 1966 and renewed in 1969, the gallery owned all of Rothko's paintings.
Following Rothko's death the three executors for the estate agreed to sell 100 works to Marlborough for a total of $1,800,000 while a further 698 works were consigned to the gallery for sale at a fixed commission of 50%. However the executors paid only $200,000 upfront to the estate. In the year after Rothko's death the value of his work more than doubled while early works were selling at auction for over $80,000.
In 1971 Kate Rothko sued to release the estate from the sale agreement and have the paintings returned to the family. The legal proceedings revealed that when still a struggling artist with a young family, Rothko agreed to a deal with the gallery in which all of his paintings would be sold through the gallery in exchange for a set monthly fee. Such terms were not unheard of, as Pablo Picasso
Pablo Picasso
Pablo Diego José Francisco de Paula Juan Nepomuceno María de los Remedios Cipriano de la Santísima Trinidad Ruiz y Picasso known as Pablo Ruiz Picasso was a Spanish expatriate painter, sculptor, printmaker, ceramicist, and stage designer, one of the greatest and most influential artists of the...
had had a similar deal with his gallery in the 1920s.
It emerged from the proceedings that the estate executors and the gallery defrauded Rothko and his estate through various methods of self-dealing. Among other wrongful acts, the gallery had been filtering payments for Rothko's works through accounts in Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
and Liechtenstein as part of an effort to ensure the paintings were undervalued during Rothko's lifetime — in the 1960s this led the artist to vastly underestimate the value of his works, directly resulting in his agreement to consignments of dozens of paintings to the gallery and collectors without appreciating his works' full value.
The trial record revealed that the gallery had been stockpiling the undervalued works instead of selling them in order to ensure both a low market saturation and a high Marlborough inventory, anticipating a heightened value in the market after Rothko's death. Further, the 100 paintings 'sold' after Rothko's death by the estate executors through Marlborough were not sold to bona fide purchasers, but were instead retained by the gallery which shuffled the sale monies through its accounts in Europe, and which then quickly 're-sold' the works to actual purchasers for 5 to 6 times the value declared by the estate. Many works were sold this way by the Marlborough with the complicity of the executors despite the court's injunction against selling any works while the case was unresolved and still before the courts.
Ultimately, certain directors at Marlborough were convicted of defrauding the Rothko family, and in 1975, the court ordered the gallery to pay over $9 million in damages and costs, and also ordered the gallery to return 658 Rothko paintings it still held. Marlborough disputed the return of the paintings and was able to prevail as to those works it had sold during the proceedings in defiance of the court's orders to the contrary. Those works remained in the hands of collectors, including Rothko's 1953 oil on canvas painting, Homage to Matisse, which later sold at public auction for US $22.4 million.
Valuation issues
The courts involved in litigating the Rothko matter were faced with many complex issues as part of and beyond the wrongdoing of the Marlborough group as estate executors. In particular, the valuation of services rendered by counsel were litigated at length; and the valuation of the paintings posed complex questions as their valuation affected nearly every other matter facing the court. In 1979 after much of the matter's litigation had already taken place, the court said:...[ T] he bulk of the estate was and is in the form of hundreds of paintings rather than cash ... and ...[ the] Internal Revenue ServiceInternal Revenue ServiceThe Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
may not at an early time complete its final determination with respect to date-of-death estate taxesInheritance taxAn inheritance tax or estate tax is a levy paid by a person who inherits money or property or a tax on the estate of a person who has died...
. The estate is presently resisting a deficiency assessment of large proportions. In litigating that issue there is not only a difference of opinion with respect to the value of the hundreds of paintings in this estate but also whether a blockage discountBlockage discountBlockage discount is an art-business-related and legal term of art for referring to the money discount assigned to a group of artworks by a single artist when that group of works is to be released to market as a group rather than individually...
should be given to the estate and whether a further discount should be available due to the inter vivos contract for an exclusive agency in favor of Marlborough Galleries for seven years after death, and finally whether a discount should be enjoyed by the estate for commissions which must be paid for selling many of the paintings by agents of the estate.
...
[ P] revailing counsel have participated in approximately 20,000 pages of transcript of pretrial and trial testimony; thousands of exhibits have been introduced and considered; thousands of pages of briefs have been submitted to this court and to the appellate courts; many decisions were made in this court, pretrial as well as the ultimate disposition; the Appellate Division has ruled on these matters several times; and the Court of Appeals has finally unanimously affirmed the major disposition made in this court, (43 N.Y.2d 305, 401 N.Y.S.2d 449, 372 N.E.2d 291).
Former estate executors
The Internal Revenue Service audited the Rothko Foundation and determined that Mark Rothko's former friend and ex-estate executor Bernard Reis was liable for various self-dealing excise taxes under section 4941 of the Internal Revenue CodeInternal Revenue Code
The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...
of 1954 (IRS code) for the years 1970 through 1974 in the total amount of $18,582,500, and additions to tax under sections 6651 and 6684 for the same years in the respective total amounts of $518,125 and $2,112,500. Reis' estate (he was dead by that time) lost its summary judgment motion to make the ruling go away.
Despite Theodoros Stamos protestations that he had done nothing wrong, the Tax Court also ruled against him for liability for various self-dealing excise taxes under IRS code section 4941 for the years 1970 through 1976 in the total amount of $19,407,500, and additions to tax under sections 6651(a)(1) and 6684 for the same years in the respective total amounts of $724,375 and $2,957,500. Stamos also lost his appeal.
Marlborough A.G.'s founder Frank Lloyd paid a third of the $9.2 million award to the Rothko children as a fine against Marlborough for violating the court's injunction against the sale of any further paintings before a final ruling or settlement. The disgraced Lloyd is not mentioned as active after 1972 on the gallery history page on Marlborough's website. Lloyd died in 1998 at age 86.
Legal and financial concepts at issue
- art valuationArt valuationArt valuation, an art-specific subset of financial valuation, is the process of estimating the potential market value of works of art and as such is more of a financial rather than an aesthetic concern, however, subjective views of cultural value play a part as well...
- breach of contractBreach of contractBreach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
- breach of trustPosition of trustPosition of trust is a legal term that is commonly used in the United Kingdom, the United States, and Canada. It refers to a position of authority over another person or within an organization, for example as a supervisor...
- warranty of titleImplied warrantyIn common law jurisdictions, an implied warranty is a contract law term for certain assurances that are presumed to be made in the sale of products or real property, due to the circumstances of the sale. These assurances are characterized as warranties irrespective of whether the seller has...
- conflict of interestConflict of interestA conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
- contemptContempt of courtContempt of court is a court order which, in the context of a court trial or hearing, declares a person or organization to have disobeyed or been disrespectful of the court's authority...
- covenant of good faith and fair dealingImplied covenant of good faith and fair dealingIn contract law, the implied covenant of good faith and fair dealing is a general presumption that the parties to a contract will deal with each other honestly, fairly, and in good faith, so as to not destroy the right of the other party or parties to receive the benefits of the contract...
- damagesDamagesIn law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...
calculation - documentary evidenceDocumentary evidenceDocumentary evidence is any evidence introduced at a trial in the form of documents. Although this term is most widely understood to mean writings on paper , the term actually include any media by which information can be preserved...
- equitableEquitable remedyEquitable remedies are judicial remedies developed and granted by courts of equity, as opposed to courts of common law. Equitable remedies were granted by the Court of Chancery in England, and remain available today in most common law jurisdictions. In many jurisdictions, legal and equitable...
versus constructive ownership - estateEstate (law)An estate is the net worth of a person at any point in time. It is the sum of a person's assets - legal rights, interests and entitlements to property of any kind - less all liabilities at that time. The issue is of special legal significance on a question of bankruptcy and death of the person...
contract - fiduciary duty
- fraudFraudIn criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
- injunctionInjunctionAn injunction is an equitable remedy in the form of a court order that requires a party to do or refrain from doing certain acts. A party that fails to comply with an injunction faces criminal or civil penalties and may have to pay damages or accept sanctions...
- inter vivosInter vivosInter vivos is a legal term referring to a transfer or gift made during one's lifetime, as opposed to a testamentary transfer ....
agreements - joint and several liabilityJoint and several liabilityWhere two or more persons are liable in respect of the same liability, in most common law legal systems they may either be:* jointly liable, or* severally liable, or* jointly and severally liable.-Joint liability:...
- negligenceNegligenceNegligence is a failure to exercise the care that a reasonably prudent person would exercise in like circumstances. The area of tort law known as negligence involves harm caused by carelessness, not intentional harm.According to Jay M...
- present valuePresent valuePresent value, also known as present discounted value, is the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk...
- temporary restraining order
In film
Thirteen years after his death, Mark Rothko's tale aired as a television movie: The Rothko Conspiracy, a co-production of the BBC and Lionheart Television. The filmmakers based their work on the 1978 book, The Legacy of Mark Rothko, on interviews and the trial transcripts.See also
- Art dealerArt dealerAn art dealer is a person or company that buys and sells works of art. Art dealers' professional associations serve to set high standards for accreditation or membership and to support art exhibitions and shows.-Role:...
- Art gallery
- Art world economics
Further reading
- Wellman, Richard V., Punitive Surcharges Against Disloyal Fiduciaries--Is Rothko Right?, 77 Michigan Law Review 95 (1978-1979).
- Harrow, Gustave, Reflections on Estate of Rothko: The Role of the Legal Advisor in Relation to the Artist, 26 Cleveland State Law Review 573 (1977).
- Feldman, Franklin, Marketing Fine Art: Selling the Right Thing the Wrong Way, 1 Communications & the Law 71 (1979).
- Gerstenblith, Patty. Art, Cultural Heritage, and the Law. pp. 336-344. Carolina Academic Press, 2004/2008. ISBN 9781594600999.