Steve Nelson: Art sale penalty clause could fuel the storm

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WASHINGTON — A storm of opposition has arisen to the Berkshire Museum's plan to auction off 40 works of art, including two Norman Rockwell paintings. That storm intensified with the publication last week on The New Yorker website of a lengthy article on the museum by financial journalist Felix Salmon, and his subsequent blog posting calling the museum's leadership "arrogant, unaccountable and dishonest."

Eagle investigations editor Larry Parnass interviewed Salmon about the possible terms of the museum's contract with auction house Sotheby's (Oct. 8). Neither the museum nor Sotheby's has made that contract public. A key issue is whether it includes a financial penalty should the museum withdraw the works from the sale. A potential liability of several million dollars in the event of withdrawal has been cited as compelling the museum to proceed with the sale.

But Salmon says there may not be such a penalty clause. He points to the terms of a previous sale by the museum in which Sotheby's granted it the status known in the auction business as "enhanced hammer." This gives the seller more favorable terms, including netting more than 100 percent of the sale or "hammer" price. Salmon notes that since the museum got "enhanced hammer" status when it sold $7 million of art in 2009, it should have had no difficulty in achieving such status for the present auction, estimated to bring in $40 million or more.

Salmon argues that an "enhanced hammer" seller should be in a position to have a withdrawal penalty removed from its contract. But he adds that "if the museum anticipated public opposition and wanted to bind itself to the sale, it might have left the withdrawal penalty in." Salmon concludes that while he opposes the sale, "I can't make the argument that it's illegal."

But I can, depending on certain facts we do not know without the contract being made public.

If there is a withdrawal penalty, then it raises the question of whether in fact museum director Van Shields, supported by the Board of Trustees, negotiated with Sotheby's in good faith. Did he push to have the penalty provision removed or, as Salmon wonders, did he leave it in to thwart opposition to the sale?

This question of whether there is a penalty clause has become critical. If there is none, then the museum has lost its strongest argument for why the sale cannot be paused or cancelled. In that case, we might well ask why we've been led to believe that there is such a penalty clause.

But if in fact there is one, then there needs to be an inquiry as to whether the museum leadership negotiated in good faith in not having it removed. It is their fiduciary duty to the museum to obtain the most favorable contract terms from Sotheby's. Purposefully leaving the penalty clause in the contract to protect themselves from public blowback, or not acting in good faith to seek its removal, would be a violation of that duty.

Massachusetts Attorney General Maura Healey is investigating the art sale as to whether it complies with the museum's obligations as a non-profit organization acting in the public trust. She has the authority to compel the museum to provide her the contract. If it contains a penalty clause, she can force the museum to pause the sale so she can determine whether in fact, in its negotiations with Sotheby's, the museum leadership acted properly.

What the contract says will in great part determine whether the sale moves forward. If there is no penalty clause, then the museum is not justified in refusing to pause or cancel the sale. If there is a penalty clause, then it must be determined if the museum's leaders performed their duty.

Shields and the board have relied on intransigence and secretiveness as levees to hold back the storm waters threatening the sale. If there is a penalty clause, then it is up to the attorney general to determine whether its inclusion resulted from good faith negotiations. If it did not, or if there is no penalty clause, then the growing public storm will likely breach those levees and wash away the sale, and with it the museum leadership.

Steve Nelson is an occasional Eagle contributor.


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