Rothko's Estate, Matter of

• Court: New York Court of Appeals Court of Appeals
• Writing for the Court: COOKE; BREITEL
• Citation: Rothko's Estate, Matter of, 401 N.Y.S.2d 449, 43 N.Y.2d 305, 372 N.E.2d 291 (N.Y. 1977)
• Decision Date: 22 November 1977
• Parties: , 372 N.E.2d 291 In the Matter of the ESTATE of Mark ROTHKO, Deceased. Kate ROTHKO et al., Respondents, v. Bernard J. REIS et al., as Executors of Mark Rothko, Deceased, et al., Appellants-Respondents, Attorney-General of the State of New York, Respondent-Appellant.

Page 449

401 N.Y.S.2d 449

43 N.Y.2d 305, 372 N.E.2d 291

In the Matter of the ESTATE of Mark ROTHKO, Deceased Kate ROTHKO et al., Respondents, v. Bernard J. REIS et al., as Executors of Mark Rothko Deceased, et al., Appellants-Respondents Attorney-General of the State of New York, Respondent-Appellant.

Court of Appeals of New York.

Nov. 22, 1977.

Arthur Richenthal, New York City, for Bernard J. Reis and another, appellants-respondents.

Bernard H. Greene and John A. Silberman, New York City, for Morton Levine, appellant-respondent.

David W. Peck, John W. Dickey, David M. Olasov, Pamela S. Dwyer, New York City, and David B. Tulchin, Great Neck, for Marlborough Gallery, Inc., and others, appellants-respondents.

Louis J. Lefkowitz, Atty. Gen. (Gustave Harrow, New York City, of counsel), for ultimate charitable beneficiaries, respondent-appellant.

Edward J. Ross, James R. Peterson and James J. Sabella, New York City, for Kate Rothko, respondent.

Judith A. Ripps-Goldstone, George E. DeSipio and Martin I. Gdanski, New York City, for The Mark Rothko Foundation, Inc., respondent.

Paul Sarno, New York City, Gerald Dickler and Jack Schachner, White Plains, for Barbara B. Northrup, as guardian of the person and property of Christopher Rothko, respondent.

OPINION OF THE COURT

COOKE, Judge.

Mark Rothko, an abstract expressionist painter whose works through the years gained for him an international reputation of greatness, died testate on February 25, 1970. The principal asset of his estate consisted of 798 paintings of tremendous value, and the dispute underlying this appeal involves the conduct of his three executors in their disposition of these works of art. In sum, that conduct as portrayed in the record and sketched in the opinions was manifestly wrongful and indeed shocking.

Rothkos' will was admitted to probate on April 27, 1970 and letters testamentary were issued to Bernard J. Reis, Theodoros Stamos and Morton Levine. Hastily and within a period of only about three weeks and by virtue of two contracts each dated May 21, 1970, the executors dealt with all 798 paintings.

By a contract of sale, the estate executors agreed to sell to Marlborough A.G., a Liechtenstein corporation (hereinafter MAG), 100 Rothko paintings as listed for $1,800,000, $200,000 to be paid on execution of the agreement and the balance of $1,600,000 in 12 equal interest-free installments over a 12-year period. Under the second agreement, the executors consigned to Marlborough Gallery, Inc., a domestic corporation (hereinafter MNY), "approximately 700 paintings listed on a Schedule to be prepared", the consignee to be responsible for costs covering items such as insurance, storage restoration and promotion. By its provisos, MNY could sell up to 35 paintings a year from each of two groups, pre-1947 and pos for 12 years at the best price obtainable but not less than the appraised estate value, and it would receive a 50% Commission on each painting sold, except for a commission of 40% On those sold to or through other dealers.

Petitioner Kate Rothko, decedent's daughter and a person entitled to share in his estate by virtue of an election under EPTL 5-3.3, instituted this proceeding to remove the executors, to enjoin MNY and MAG from disposing of the paintings, to rescind the aforesaid agreements between the executors and said corporations, for a return of the paintings still in possession of those corporations, and for damages. She was joined by the guardian of her brother Christopher Rothko, likewise interested in the estate, who answered by adopting the allegations of his sister's petition and by demanding the same relief. The Attorney-General of the State, as the representative of the ultimate beneficiaries of the Mark Rothko Foundation, Inc., a charitable corporation and the residuary legatee under decedent's will, joined in requesting relief substantially similar to that prayed for by petitioner. On June 26, 1972 the Surrogate issued a temporary restraining order and on September 26, 1972 a preliminary injunction enjoining MAG, MNY, and the three executors from selling or otherwise disposing of the paintings referred to in the agreements dated May 21, 1970, except for sales or dispositions made with court permission. The Appellate Division modified the preliminary injunction order by increasing the amount of the bond and otherwise affirmed. By a 1974 petition, the Attorney-General, on behalf of the ultimate charitable beneficiaries of the Mark Rothko Foundation, sought the punishment of MNY, MAG, Lloyd and Reis for contempt and other relief.

Following a nonjury trial covering 89 days and in a thorough opinion, the Surrogate found: that Reis was a director, secretary and treasurer of MNY, the consignee art gallery, in addition to being a coexecutor of the estate; that the testator had a 1969 inter vivos contract with MNY to sell Rothko's work at a commission of only 10% And whether that agreement survived testator's death was a problem that a fiduciary in a dual position could not have impartially faced; that Reis was in a position of serious conflict of interest with respect to the contracts of May 21, 1970 and that his dual role and planned purpose benefited the Marlborough interests to the detriment of the estate; that it was to the advantage of coexecutor Stamos as a "not-too-successful artist, financially", to curry favor with Marlborough and that the contract made by him with MNY within months after signing the estate contracts placed him in a position where his personal interests conflicted with those of the estate, especially leading to lax contract enforcement efforts by Stamos; that Stamos acted negligently and improvidently in view of his own knowledge of the conflict of interest of Reis; that the third coexecutor, Levine, while not acting in self-interest or with bad faith, nonetheless failed to exercise ordinary prudence in the performance of his assumed fiduciary obligations since he was aware of Reis' divided loyalty, believed that Stamos was also seeking personal advantage, possessed personal opinions as to the value of the paintings and yet followed the leadership of his coexecutors without investigation of essential facts or consultation with competent and disinterested appraisers, and that the business transactions of the two Marlborough corporations were admittedly controlled and directed by Francis K. Lloyd. It was concluded that the acts and failures of the three executors were clearly improper to such a substantial extent as to mandate their removal under SCPA 711 as estate fiduciaries. The Surrogate also found that MNY, MAG and Lloyd were guilty of contempt in shipping, disposing of and selling 57 paintings in violation of the temporary restraining order dated June 26, 1972 and of the injunction dated September 26, 1972; that the contracts for sale and consignment of paintings between the executors and MNY and MAG provided inadequate value to the estate, amounting to a lack of mutuality and fairness resulting from conflicts on the part of Reis and Stamos and improvidence on the part of all executors; that said contracts were voidable and were set aside by reason of violation of the duty of loyalty and improvidence of the executors, knowingly participated in and induced by MNY and MAG; that the fact that these agreements were voidable did not revive the 1969 inter vivos agreements since the parties by their conduct evinced an intent to abandon and abrogate these compacts. The Surrogate held that the present value at the time of trial of the paintings sold is the proper measure of damages as to MNY, MAG, Lloyd, Reis and Stamos. He imposed a civil fine of $3,332,000 upon MNY, MAG and Lloyd, same being the appreciated value at the time of trial of the 57 paintings sold in violation of the temporary restraining order and injunction. ¹ It was held that Levine was liable for $6,464,880 in damages, as he was not in a dual position acting for his own interest and was thus liable only for the actual value of paintings sold MNY and MAG as of the dates of sale, and that Reis, Stamos, MNY and MAG, apart from being jointly and severally liable for the same damages as Levine for negligence, were liable for the greater sum of $9,252,000 "as appreciation damages less amounts previously paid to the estate with regard to sales of paintings." The cross petition of the Attorney-General to reopen the record for submission of newly discovered documentary evidence was denied. The liabilities were held to be congruent so that payment of the highest sum would satisfy all lesser liabilities including the civil fines and the liabilities for damages were to be reduced by payment of the fine levied or by return of any of the 57 paintings disposed of, the new fiduciary to have the option in the first instance to specify which paintings the fiduciary would accept.

The Appellate Division, in an opinion by Justice Lane, modified to the extent of deleting the option given the new fiduciary to specify which paintings he would accept. Except for this modification, the majority affirmed on the opinion of Surrogate Midonick, with additional comments. Among others, it was stated that the entire court agreed that executors Reis and Stamos had a conflict of interest and divided loyalty in view of their nexus to MNY and that a majority were in agreement with the Surrogate's assessment of liability as to executor Levine and his findings of liability against MNY, MAG and Lloyd. The majority agreed with the Surrogate's analysis awarding "appreciation damages" and found further support for his rationale in Menzel v. List, 24 N.Y.2d 91, 298 N.Y.S.2d 979, 246 N.E.2d 742. Justice Kupferman, in an opinion styled "concurr(ing) in part and dissent(ing) in part", stated that, although he had "expressed reservations with respect to various factors to be considered in the calculation of damages", he concurred "in the basic conclusion and,...