The Mark Rothko Estate Case: Self-Dealing in the Art World

The 2010 Tony Award for Best Broadway Play went to Red by John Logan.  The play tells the story of abstract expressionist painter Mark Rothko's creative struggle as the artist executed a series of commissioned murals for New York's famed Four Seasons Restaurant, now known as the Seagram Murals.  As compelling a play as this visual dramatic feast is, it is equally matched by the legal drama that surrounded Rothko's art estate following his suicide in 1970.  Like the play, its cast of characters were colorful, monomaniacal, and behaved in ways described by the New York Court of Appeals in Matter of Rothko, 43 NY2d 305, as "manifestly wrongful and indeed shocking."  The charges brought before the court by Rothko's children included conspiracy, fraud, and breach of fiduciary duty resulting in the waste of estate assets.

The case would take over six years to reach the Court of Appeals.  In a non-jury trial that lasted 89 days, the case exposed how the artist's three executors named in his Will, two of whom had conflicts of interest with the gallery that represented Rothko, disposed of 798 extremely valuable paintings.   The testimony revealed a labyrinth of shady deals, betrayal, and bald-faced greed -- the seedy side of the art world. The trial also showed the importance of selecting trustworthy executors for one's estate.

In 1956 when Rothko was a struggling artist in New York, he had made a contract with the Marlborough Gallery whereby the gallery would sell all of Rothko's paintings in exchange for a monthly stipend.  In the 1960s, during Rothko's most prolific output, the gallery under the direction of its owner Frances Kenneth Lloyd consistently under-reported the sale price of the paintings by filtering the payments through Swiss and Liechtensteiner bank accounts.  As a result, Rothko continued to believe erroneously that his work was not garnering high prices on the art market. Rothko renewed his contract with the Marlborough Gallery in 1969, one year before his untimely death.

According to the New York Times, Rothko had named three executors in his Will:  Bernard Reis, his financial advisor, who also drafted the Will; Morton Levine, a friend and anthropology professor; and Theodore Stamos, a fellow abstract expressionist artist.  Reis also set up the Mark Rothko Foundation, which was to be funded by the sale of Rothko's paintings bequeathed to the Foundation.  The Foundation's original charter stated that the trustees were to place the works with appropriate museums and collectors, with the proceeds going to educational purposes.

During the course of the trial, it was revealed that the executors had conspired to defraud the estate after Rothko's death.  Two of the three named executors had a conflict of interest with respect to the Marlborough Gallery.  Reis was a director of the gallery.  Stamos also developed a conflict of interest when he was influenced to change his representation from the Andre Emmerich Gallery to a more generous contract with the Marlborough Gallery in exchange for his cooperation in the conspiracy.

Shortly before he committed suicide in 1970, Rothko gave some of the paintings still in his possession to his two children.   He hoped that the value of his work would increase upon his passing and thus provide for their financial security.  After his death, the children were unceremoniously informed by Lloyd that, as a result of the 1956 and the 1969 contracts, Marlborough Gallery owned all of Rothko's paintings.   

Meanwhile the Foundation's trustees changed the purpose clause in the charter so that the Foundation would now be awarding grants to artists.  These grants were to be funded by the sale of the paintings.  This change in the Foundation's charter made way for a new deal with Marlborough Gallery.  The executors sold 100 paintings to Marlborough in short order for $1,800,000 and consigned another 698 works at the inflated commission of 50 percent.  They then divided up the sales proceeds as their commissions, leaving the estate with only $200,000 in proceeds from the sale of the paintings.

In 1971 the artist's daughter Kate, along with the guardian of her brother Christopher, sued to have the executors removed and to recover the paintings by having the estate released from the contracts with Marlborough Gallery.  The bases of the complaint were fraud and a breach of fiduciary duty of care resulting in the waste of estate assets.  The case wound its way through the courts until it reached New York's highest court in 1977.  The Court of Appeals agreed with the rulings of the courts below.  The three executors were removed and, together with the Marlborough Gallery, they were ordered to pay more than $9 million dollars plus costs, representing appreciation damages, and to return 658 paintings to the estate.  Some paintings had been sold by the gallery in 1972 in violation of a temporary restraining order. 

 

The Rothko case serves as a cautionary tale about the appointment of executors with clean hands who are not self-interested.   In the case of Reis and Stamos, both were involved with the Marlborough Gallery.  Their conflict of interest led to self-dealing and a betrayal of their fiduciary trust.

I invite you to join my list of subscribers to this blog by clicking on "Subscribe to" on the left-hand side of the page so that you can receive a notification when the next installment has been published. Thank you.