Art Law Report

Corcoran Merger Approved, Cy Prés Ruling Treats Deaccession as Non-Starter in Concluding that Status Quo is Untenable

Posted by Nicholas O'Donnell on August 19, 2014 at 8:05 AM

As reported initially, Judge Robert Okun of the District of Columbia Superior Court allowed yesterday the cy prés petition by the trustees of the Corcoran Gallery and the Corcoran College of Art + Design. The full opinion can be read here. The petition asked to reform the trust of William Corcoran to permit a merger with the National Gallery of Art and George Washington University, a merger that will now proceed. The ruling addresses the financial condition of the Corcoran at length, but what is perhaps most interesting is the court’s acceptance of a central argument made by the Corcoran that selling its artwork to shore up its finances was an unacceptable way to proceed. This adopts the view, espoused most prominently by the American Alliance of Museums (AAM) and the Association of Art Museum Directors (AAMD), that deaccessioning for anything other than the purchase or care of art is anathema. Right or wrong, that acceptance in this opinion should have long lasting effects. Framing the question in this way was a work of skilled lawyering by the Corcoran’s attorneys, and kudos must go as well to the interveners and their counsel, without whom the other side of the story would have had no advocates at the trial. Those interveners have stated that they do not intend to appeal, meaning the case is over. Jayme McLellan, founder of Save the Corcoran, issued a statement after the ruling that “The Corcoran as we know it is gone. We fought the good fight." Incidentally, in response to our earlier reporting of McLellan’s role, I received an e-mail yesterday from Mimi Carter, the Corcoran’s Vice President, Marketing & Communication. Ms. Carter stated “Jayme McLellan was not fired from the Corcoran. She resigned in 2012, as mentioned on the first day of court hearings, citing differences with leadership. While there was a miscommunication with Ms. McLellan because of a lack of internal systems, due to a diminished staff and finances, she was not offered a contract to teach this coming Fall. Statements of retaliation are simply false.”

This is a significant ruling that will have an effect on museum management beyond cy prés petitions, which are relatively rare. The court’s treatment of deaccession as a non-starter is a judicial adoption of a principle that is codified only in the regulations of the New York Board of Regents. That is notable in and of itself.

In his opinion, Judge Okun frames the issue simply: 1) is carrying out Corcoran’s Deed of Trust impracticable; and 2) is the proposed reformation as near as possible to the donor’s intent? The opinion then reviews the course of the trial: three witnesses for the Corcoran (Corcoran COO Lauren Stack; Dr. Steven Knapp from George Washington University; and consultant Sean O’Connor), and eight witnesses for the interveners and opponents of cy prés, consisting of five fact witnesses (Harry Hopper III, chairman of the Board of Trustees; Wayne Reynolds; Dr. Wallach Loh of the University of Maryland; Anne Smith, former Associate Director of Individual Giving; and Caroline Lacey, a current College of Art + Design student), and three expert witnesses (Paul Johnson, consultant at Alexander Haas; Kathy Raffa, an accountant; and Chiara Trabucchi, a consultant at Industrial Economics).

The foundational history of the Corcoran was not in dispute, and so the opinion focuses on the financial conditions of the last twenty five years in particular. The court found that “since 2001, the Corcoran has had a negative ‘true change in net assets from operations’ in eleven of the last thirteen years. . . .” Maintenance had also been deferred for financial reasons. To meet its $28 million annual operating budget, the court found that the Corcoran relies on three principal sources: $18 million from tuition (only a net of $13 million after financial aid), $1.5-$1.7 million from admissions/special events, and $3.8 million in charitable fundraising. Right there, that is a shortfall of nearly $5 million.

The opinion devotes an entire section to consideration of the impact of deaccessioning and accreditation. It highlights both the pending re-accreditation with the Middles States Commission on Higher Education (MSCHE) for the College, and the AAMD/AAM guidelines and Code of Ethics on Deaccessioning for the Gallery. The former was explicitly at risk without the merger (which MSCHE endorsed). With regard to the AAMD/AAM guidelines, the court found:

Violation of AAM’s Code of Ethics might result in loss of AAM accreditation, which would have a negative impact on the Corcoran’s ability to hire and retain qualified staff as well as its eligibility for grants and federal funding. [] Also, violation of the AAMD’s Policy [on deaccessioning] likely would result in sanctions, which would limit the Corcoran’s ability to host traveling exhibitions, to loan and receive loans of art from other institutions, and to hire and retain qualified staff.

It is important to remember that the Court was not endorsing or commenting on these industry guidelines. It was, however, accepting their importance to the operation of the museum. Essentially, it found that an institution like the Corcoran cannot operate independently of the AAM or AAMD, whose opprobrium would surely follow any deaccessioning.

My initial take is that the court’s acceptance of this perspective on deaccessioning is extremely significant. Just last week there were two mainstream publications about deaccessioning, one in the New York Times and one on National Public Radio. Both, frankly, spoke about the public trust and the inviolability of collections without really exploring the other side of the question. As good friend of the Art Law Report Donn Zaretsky put it today in response to the announcement that the Art Institute of Chicago is selling 117 works (but presumably for the purchase of more art):

How can this be okay – not even worthy of a mention in the press aside from the auction house’s own press release – but it’s not okay for the Corcoran to sell work in order to keep from disappearing? It can’t be a matter of the public trust – or else both sales would be wrong. And it can’t be a concern about future donors – or else, again, both sales would be wrong.

This is a serious question that deserves an answer from anyone who thinks the subject deserves bright-line treatment. Sergio Muñoz Sarmiento also decried the simplistic treatment of a complicated issue at the Deaccessioning Blog here. In any event, in treating deaccession as a non-starter, it was not a great leap from there to conclude that the status quo was untenable, and that the prospects of fundraising advocated by the interveners seemed overly optimistic on the record before the court.

The critical balance of the analysis is other half of the question: is this as near as possible? The alternative proposal that had been negotiated with the University of Maryland captured the court’s attention on that score.

Concluding that the trustees’ burden of proof was only a preponderance of the evidence, the court applied cy prés. Most of the assets owned by the trust are restricted, and the other cash flows just do not add up. The court notably side-stepped the question of the Corcoran’s management, noting that the question was only the present state of affairs.

With regard to Corcoran’s original intent, the court found

The GW/NGA proposal is the best way to effectuate Mr. Corcoran’s original intent, given the Corcoran’s current financial circumstances and the option that actually are available to the Trustees at this time.

This is because the court viewed Corcoran’s

primary intent [as] to create a gallery of fine art, along with a college of art and design, located in the District of Columbia, and to encourage the production and preservation of fine art through both the gallery and the college.

The court was satisfied that the dual input of the National Gallery of Art and George Washington University met those criteria. The court found the alternatives proposed as “less consistent with Mr. Corcoran’s intent.” Critically, any alternative would necessarily involve renegotiation at a minimum, imperiling accreditation and the coming academic year. The court was demonstrably unimpressed with Reynolds’s suggestions—for many reasons, including their inclusion of deaccessioning.

The court summed up the matter thusly:

Undoubtedly, Mr. Corcoran would not be pleased by this turn of events. It seems likely, however, that he would be pleased to see that the College will be preserved through its partnership with the very university to which he donated both property and his company’s archives, and where he served as Chairman of the Board for several years, and that the Gallery will be preserved through its partnership with one of the country’s pre-eminent art institutions.

Topics: Donn Zaretsky, Middles States Commission on Higher Education, Harry Hopper III, Anne Smith, Deaccession, Kathy Raffa, National Gallery of Art, Chiara Trabucchi, Industrial Economics, Jayme McLellan, William Corcoran, Save the Corcoran, George Washington University, sanctions, Corcoran Merger, University of Maryland, Deaccessioning, Cy Pres, Judge Robert Okun, Sergio Muñoz Sarmiento, District of Columbia Superior Court, AAM Code of Ethics, Corcoran College of Art + Design, Lauren Stack, Alexander Haas, Paul Johnson, Trusts, Art Institute of Chicago, Dr. Steven Knapp, Corcoran Gallery, Museums, New York Times, Sean O’Connor, Caroline Lacey, MSCHE, Dr. Wallach Loh, Deaccessioning Blog, Art Law Report, Mimi Carter, National Public Radio

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