Grossman LLP | <strong >How COVID-19 May Impact the Art Law Sphere In the Coming Months</strong >
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  • How COVID-19 May Impact the Art Law Sphere In the Coming Months
    In the few short weeks since our last post in this space, the world has changed in staggering ways.  The COVID-19 pandemic has wreaked havoc on governments, businesses, economies, markets, communities, and most importantly, countless families and lives. 
    The current crisis has also profoundly impacted the larger art world.  We do not claim to have any special powers to predict the future of the art market, particularly in the face of this unprecedented crisis.  But as seasoned litigators with years of experience in art law, here are a few thoughts about what we may see in the coming months in the realm of art disputes, as the ramifications of this pandemic continue to unfold.
    Disputes Over Event Cancellations
    As cities seek to slow the spread of the disease through varying restrictions on citizens’ daily activities, the art community has been impacted in myriad ways: museums and galleries have closed, art fairs have been canceled, and travel is curtailed.  For some major events, there may be event cancellation insurance in place. And many types of contracts contain “force majeure” clauses that explain how risks and losses should be allocated in the event of an unforeseeable external event that makes performance impossible.  But the effect of such contractual mechanisms can vary widely depending on the particular language in a given contract.  So it is critical that parties consult with legal counsel to analyze their contractual rights and obligations in the face of these unprecedented events.  
    It seems probable that some parties (and their insurers) will disagree about how their contract applies in the context of the COVID-19 crisis.  Relatedly, as exhibitions are forced to precipitously shutter and shipping services are disrupted, is also possible that some artworks—for example, works that have been loaned by collectors for a special exhibition—may be “stranded” far from home, or may even suffer damage, resulting in potential disputes and insurance coverage claims.  Collectors, galleries, institutions, and artists alike would be well advised to discuss these situations with their legal counsel sooner, rather than later, to determine what steps can be taken to protect their rights and limit any potential liability. 
    Disputes Between Artists and Galleries
    We already have seen examples of disputes between artists and galleries.  Artists often forge a relationship with a particular gallery, with the artist granting the gallery some exclusive rights to sell primary (new-to-market) works by the artist, and the gallery committing to promote and market the artist’s work. Now, because many galleries have closed and cancelled planned shows and exhibitions, an artist and her gallery may find themselves at odds over how to handle the financial and logistical fallout of their intended partnership, the fate of consigned but unsold works, and the distribution of proceeds from previous sales.  Many of these disputes will turn on the particulars of the contract language governing the artist-gallery relationship.  
    The New York Art & Cultural Affairs Law may also play an important role in these situations (see here for an example); this New York legislation provides certain statutory protections to artists in their dealings with galleries.  And once again, galleries, as well as artists, should consult with experienced art-law counsel to ensure that they are complying with—and receiving the benefits of—these important laws.
    Bankruptcies of Galleries 
    Art can be a difficult business at the best of times, and unfortunately, some art galleries may not survive the strain of prolonged closures, an economic slowdown, and other challenges stemming from this pandemic. And, as we have seen (for example, in the Chowaiki Gallery bankruptcy, see here for more), art-gallery bankruptcies can pose particularly thorny legal issues, as consignors and creditors seek to untangle complex and often-competing claims not just to funds, but to actual artworks; such issues can be further complicated if a gallery faces allegations of fraudulent conduct.  Moreover, because many art galleries are small, closely held companies, creditors may attempt to find ways to hold individual owners or shareholders liable for a company’s debts or other actions.  Not only should galleries be mindful of their legal options, including bankruptcy, but parties doing business with these galleries—including collectors, artists, and vendors—all should know their legal rights vis-à-vis these galleries during these difficult economic times. 
    Art-Backed Lending 
    We have written in recent years (see here for an example) about the growing business of “art-backed loans”—that is, loans extended to art owners who pledge their artworks as collateral.  As COVID-19 causes large-scale economic upheaval, we may see an increase in art-backed loans, as collectors seek liquidity in order to meet other obligations.  Such loans can be a powerful tool, but when they go sideways—especially when parties move quickly, without sufficient diligence or careful contracting—complex litigation may result.  These disputes often require analysis of not just the governing agreements, but also the Uniform Commercial Code’s Article 9, which governs secured transactions.  Parties who already are parties to such art-backed loans, or are considering entering them, should seek legal advice about how best to protect their rights.
    Disputes Arising Out of Estate Planning or Estate Management
    The tragic realities of this pandemic are prompting many of us to evaluate our estate plans.  For art collectors, estate planning can pose unique challenges because it needs to incorporate strategies tailored specifically to dealing with artworks. The art world has seen many disputes in recent years arising out of family disagreements, bequests gone awry, and other complications that can result from flawed or incomplete estate planning, administration, or execution (for a few examples, see hereherehere, and here).  In this realm, as in so many others, clarity is essential; many of these disputes might have been avoided through clearer communication and documentation.
    A Closing Note 
    We will, as always, be monitoring cases and legal developments related to art law, and will be updating this blog to keep our readers informed.  We send our very best wishes to all our readers, and our profound gratitude to all those who are working to ameliorate the tragic effects of this crisis.  We will be here and look forward to continuing to serve the art community as we all weather this storm.        
    ATTORNEY: Kate Lucas
    CATEGORIES: Art MarketLegal Developments