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The Berry-Hill Bankruptcy: Biggest Problem Solved But Still Some Uncertain Waters to Navigate

by David Hewett

The Berry-Hill/Coram Chapter 11 bankruptcy filing has been made a lot less complicated by a couple of events that have happened since our last report. (For a complete account of the various issues facing the firm, see Maine Antique Digest, February 2006, p. 36-A.)

First, Judge Robert E. Gerber approved orders letting Berry-Hill/Coram treat the consigned works of art as if their owners had perfected their UCC claims, allowing the companies to sell the art for the owners.

P. Bradley O’Neill, attorney for Berry-Hill, said, "Consignments are an important and valued segment of Berry-Hill’s business. We worked hard to assure that the ACG agreement provides significant benefits for consignments dating from before the December 8, 2005, filing.

"The company did everything in its power to avoid filing for Chapter 11 protection. While the company did eventually need to file Chapter 11, it has done and continues to do everything possible to protect its consignors.

"While our efforts from the first day of the case to provide protections to our prefiling consignors were initially held up by concerns from our senior secured lender, ACG, we are quite pleased to have reached an agreement that obtains the lender’s consent to Berry-Hill’s making of all agreed payments regarding the sale of prefiling consigned works. Combined with our previous success in receiving approval to fully protect all post-petition consignments, we believe Berry-Hill Galleries has made tremendous strides to protect its consignors."

There was more outside-owned art at Berry-Hill Galleries on the December 8 filing date than anyone had suspected. There were works consigned for sale by collectors and dealers, canvases by living artists, and material sent there for exhibition, some having no paperwork attached.

On January 17, Judge Gerber authorized the officers of Berry-Hill/Coram to honor prior consignment agreements and, if necessary, to enter into new consignment agreements with owners wishing to sell their property. When the consigned material sells, Berry-Hill/Coram has been directed to render the owners the agreed-upon amounts and to deposit 50% of its commission into an escrow account set up to repay bankruptcy creditors. Artwork loaned to the firms was ruled to remain the property of those making the loan and was not to be counted as assets.

The concerns of living artists were a different matter. Two contemporary artists filed objections and/or statements with Judge Gerber concerning their property. Artists Dennis Masback and Judith Belzer objected to Berry-Hill/Coram’s contention "that although they do not speak for creditors, they nevertheless purportedly have title to consigned goods." They stated that a New York arts and cultural affairs law covered the interest an artist maintains in his property when a gallery or other merchant holds the property, and asserted that the New York law trumped any UCC provision.

The crucial event happened on January 26, when the original lenders, ACG Credit Co. and affiliate Art Capital Group, Inc., signed a stipulation and order that appeared to solve the major problems facing Berry-Hill/Coram. It took the form of a newly drafted $22 million loan to Berry-Hill/Coram.

P. Bradley O’Neill said, "We are quite pleased to have resolved these disputes favorably with our secured lender, ACG. This settlement will allow us to operate our business on an ongoing basis while facilitating the resolution of other pending disputes and providing a road map for our exit from Chapter 11."

There are still some issues to work out, including the matter of what happens to the consigned art that doesn’t sell. As one of the lawyers for Berry-Hill/Coram noted, when the art was brought to the companies, the consignors actually passed title to the sellers, in this case Berry-Hill/Coram.

In the very doubtful case that Berry-Hill/Coram can’t be restructured, and the bankruptcy is converted to a Chapter 7 filing, that art could be sold to satisfy creditors. The attorneys for Berry-Hill/Coram think that is highly unlikely to happen.

Still, the experience should be an eye-opener for art owners. As one attorney noted, the bankruptcy revealed just how lax art owners are when it comes to lending, consigning, and keeping track of their property. What it does mean at the present, though, is that the consigned art won’t be returned until the entire matter is ended.

That doesn’t sit well with the Honorable Joseph P. Carroll, who had material valued in excess of $700,000 on consignment with Berry-Hill when it filed the bankruptcy papers. He collects and deals in art in New York City and has donated material to the Metropolitan Museum of Art. His material at Berry-Hill includes one LaFarge work, two paintings by Benjamin West, two works by Joseph Stella, and other paintings of considerable value.

Carroll said that he consigned art to Berry-Hill only three days before its bankruptcy filing. He also said that much of the art hanging on the walls of most New York City galleries is consigned and declared that no one was offering protection to those consignors.

Another issue roiling the legal waters was the assertion of art agent Timothy Sammons that Berry-Hill/Coram had carried out an unauthorized sale of his client’s John Singer Sargent watercolor. This sale involves some $1.6 million.

According to Sammons’s attorney, Hollis Gonerka Bart, Sammons placed the watercolor with Berry-Hill in October 2005 for viewing with the objective of possible sale. No consignment or sales contracts were drawn up or entered into, according to Bart.

In November, Fred Hill notified Sammons that he had a customer interested in it, and Sammons named a price of $1.8 million. Hill came back with a lower offer, and Sammons countered with a $1.6 million figure. Sammons claims he told Hill the amount must be in the form of a firm offer before he would take it to his client.

No such offer had been tendered when Berry-Hill/Coram filed for Chapter 11 bankruptcy on December 8. Bart said Sammons and his clients had never received any further news about their painting until they discovered they were included on the "List of Creditors Holding 20 Largest Unsecured Claims" with a $1.6 million debt. In Exhibit B of the bankruptcy petition, Berry-Hill/Coram proposed paying $100,000 a month to Sammons to settle the debt.

Bart argued her client’s case before Judge Robert Gerber at a January 17 hearing on various motions. She said, "They [Berry-Hill/Coram] have $1.5 million that they define as cash-on-hand, and that there isn’t very much other cash-on-hand. So our view is that the $1.5 million must be cash that was derived from the sale of the Sargent watercolor that was placed solely for viewing with Berry-Hill Galleries prepetition [prior to the bankruptcy filing]."

Judge Gerber noted her concerns but let the various parties involved continue working out those problems among themselves without resorting to specific orders from the bench.

"Mr. Sammons has yet to substantiate his assertions factually or legally. As with all creditors, we are communicating with Sammons and are hopeful that we will be able to resolve this issue in a reasonable manner," said P. Bradley O’Neill.

Not everyone was willing to wait for a judge’s decision before taking action. Post Road Galleries of Larchmont, New York, went into New York City on December 9, and what they did there has resulted in yet another lawsuit being added to the growing stack of documents.

According to the adversarial proceeding initiated by P. Bradley O’Neill for Berry-Hill/Coram on January 17, Berry-Hill purchased a half-interest in a bronze sculpture by Frederick MacMonnies titled The Horse Tamer on October 1, 2001, from Post Road Gallery. Berry-Hill, with Post Road Gallery’s agreement, moved the sculpture to its East 70th Street galleries.

News moves fast within the art community. On December 9, exactly one day after Berry-Hill filed the bankruptcy petitions, Robert and David Bahssin, the owners of Post Road Gallery, appeared at Berry-Hill Galleries and "demanded that, in light of Berry-Hill’s bankruptcy filing, Berry-Hill deliver possession of the Sculpture to Post Road Gallery," according to the suit.

Berry-Hill refused, and after some negotiating, the Bahssins and the Hills decided that a fair price for Berry-Hill’s half-interest would be $200,000. Robert Bahssin wrote a check to Berry-Hill for that sum and noted on the check, "Repurchase of BH ½ Interest in MacMonnies Bronze w/pedestal." Exit one sculpture from Berry-Hill; enter one sculpture at Post Road.

But on December 20, Citibank, N.A., told Berry-Hill "the check was returned for insufficient funds," the suit claims. Despite more negotiations, a Bahssin (the suit doesn’t specify which) refused to return the sculpture to Berry-Hill. "Mr. Bahssin, on behalf of Post Road Gallery, stated instead that he was holding the sculpture at Post Road Gallery subject to Berry-Hill’s Half-Interest," the suit alleges.

Berry-Hill charges Post Road Galleries with several counts: breach of contract, fraud, and contempt, among them. It seeks $200,000 and damages plus the costs of legal action incurred because of Post Road Gallery’s actions.

Judge Robert Gerber signed orders enjoining Post Road Gallery from selling the bronze until the entire matter is heard by the court.