Grossman LLP | <strong >Lawsuit Against Gallery and Café Over Sale Proceeds </strong ><strong >Cites New York’s Legal Protections For Artists</strong >
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  • Lawsuit Against Gallery and Café Over Sale Proceeds Cites New York’s Legal Protections For Artists
    Last week, an artist sued a Manhattan café and gallery in connection with a dispute over the treatment of and sales of her artworks.  The lawsuit highlights some specific aspects of New York law that may provide artists with legal protections tailored to the unique, and sometimes difficult, relationship between artists and the galleries who sell their work. 
    The plaintiff in the suit (N.Y. Sup. Ct. Index No. 653320/2019) is Dan Lam, a Texas-based contemporary sculptor.  The defendants are The Hole, a Manhattan art gallery, and Mamacha, a café that operates inside the gallery; the complaint calls Mamacha a “hybrid café and art gallery” in that it sells featured artwork as well as food and drinks.  The two entities allegedly share storage and exhibition space.  (As a side note: Mamacha was originally named MoMaCha, but was forced to change its name following litigation with the Museum of Modern Art, widely nicknamed the MoMA, which claimed the café was unfairly using the MoMA moniker in violation of trademark laws.)
    In her complaint, Lam alleges that in 2017, she reached an agreement with the head of Mamacha to provide about 60 of her artworks “for display and sale on a consignment basis” in a solo show called “Hands On,” which was to run from April to July 2018 as Mamacha’s inaugural exhibition.  She claims that the exhibition was “produced in coordination with The Hole.”  She says the parties agreed, among other things, that if The Hole or Mamacha sold a work, the sale proceeds would be split 50/50 between the selling entity and the artist.   
    During the exhibition, however, Ms. Lam claims that the defendants did not live up to their obligations under the contract and under New York law.  She alleges, for example, that they failed to keep The Hole’s website updated to accurately reflect the works available for sale; failed to provide her with accurate accountings of works sold; and failed to pay her the proceeds she was owed.  She also says that some of her works were lost or damaged during their time at Mamacha, and that they failed to return all the unsold works as she requested at the end of the exhibition.  She claims she sought to resolve these issues several times, but was unsuccessful, and that she last heard from the defendants in November.  By her calculations, she is owed nearly $36,000, but she says has been paid only $6,000.
    The legal causes of action advanced in the complaint cite specific provisions of New York law that can, in some cases, provide particular protections to artists.  Her first claim cites the New York Arts and Cultural Affairs Law (NYACAL) § 12.01, which provides, among other things, that when an artist delivers a work to an art merchant for the purpose of exhibition and/or sale on a commission, that delivery establishes a consignor/consignee relationship under which the merchant is legally considered the artist’s agent with respect to the work, and the work and any proceeds from its sale are considered “trust property”—meaning it is merely held by the merchant in trust for the artist.  This law, Lam alleges, means that the defendants breached their statutory duties to her by failing to pay her the amounts she was owed and failing to protect the works themselves from damage and loss.  She also puts forth a claim for breach of fiduciary duty, urging that under NYACAL, the defendants owed her a fiduciary duty, which they breached by, among other things, commingling her trust property with their own property and failing to keep it safe.  Her third cause of action invokes New York’s Estates, Powers, and Trusts Law (EPTL), alleging that the defendants’ failure to protect her property and pay her what she was owed violated not only NYACAL but also the EPTL, which requires that trust property be kept separate from a trustee’s own property.  (See N.Y. EPTL § 11-1.)  And finally, she advances a claim for an accounting, which is an equitable claim whereby a court can require a party to provide detailed accounting information to a successful plaintiff.  Here, she says, she is entitled to an accounting because defendants were her agents, consignees, fiduciaries, and trustees with regard to these artworks, and they therefore are obligated to account for the disposition of all those works and their proceeds, but have failed to do so; moreover, she explains, she needs a complete accounting in order to accurately calculate what she is owed.
    With the lawsuit, Lam seeks several forms of relief, including a complete accounting for all the artworks (including how they were disposed of, documentation of all the dispositions, and anything the defendants received in such transactions).  She seeks not just compensatory damages and amounts she would have been owed under the contract, but further alleges that the defendants, because of their purported misconduct, should not be allowed to keep any of the commissions they might otherwise have been entitled to under the parties’ deal.  She further seeks punitive damages; costs, expenses, and attorneys’ fees (which are authorized under NYACAL); certain penalties authorized under New York’s EPTL; and prejudgment interest under CPLR § 5001. 
    The defendants have not yet formally responded to the complaint, but The Hole has sought to distance itself from the suit in public comments; its owner apparently told Artnet that any contract was purely between Lam and Mamacha, which The Hole says is merely a “tenant” who leases some of The Hole’s space.  She said that The Hole tried to help with the exhibition “in promotional ways” including by posting works on its website, but otherwise was not involved and received no commissions.  It seems likely that the relationship between the two defendants will become a contested issue in the litigation; if The Hole can successfully claim it was not a party to the contracts at issue and the works were not delivered to it, that may limit Lam’s ability to recover against one of the defendants.  It’s also possible that Mamacha might seek to argue that it is merely a café and not an “art merchant” at all under NYACAL, and thus should not be subject to some of the statutory requirements Lam cites; however, it’s worth noting that NYACAL’s definition section provides that an art merchant can be anyone “who is in the business of dealing, exclusively or non-exclusively, in works of fine art or multiples…”  In other words, a business need not be exclusively engaged in selling art in order to have obligations under NYACAL.  
    Moreover, it’s possible that Lam’s case may be complicated by the apparent lack of a comprehensive written contract; rather than presenting a full written document laying out the parties’ understandings, Lam alleges that the parties reached the material terms of their consignment deal via a series of “conference calls, video chats, text messages, and emails.”  
    We’ll continue to watch the dispute as it unfolds.  But the case will likely emphasize the importance of certain aspects of New York state law, especially NYACAL, that can—in certain circumstances—provide a potent legal tool for artists, and can increase potential liability for unwary defendants who run afoul of them.  In general, where NYACAL applies, it holds art merchants to a high standard of conduct when they deal with artists’ consigned works; legally, these types of agency, fiduciary, and trust relationships mean that a merchant subject to NYACAL has heightened responsibilities to the artist, as compared with a garden-variety art transaction where two parties are dealing with each other at arms-length.  Anyone dealing in artwork, as an artist or as a dealer or gallery, needs to understand the rights and responsibilities enshrined in these unique statutes, and take them into account in planning for exhibitions, consignments, and other transactions.  The case also serves as yet another frequent reminder of the importance of memorializing parties’ understandings in the form of written contracts, which can be more effectively analyzed and enforced if and when disputes arise.
    ATTORNEY: Kate Lucas
    CATEGORY: Art Galleries