Friday, March 22, was not a particularly auspicious day for the higher-ups at Christie’s. That was the day a U.S. Bankruptcy Court Southern District of New York judge gave a trustee the right to choose Sotheby’s to auction the bulk of a collection that had been promised to the American Folk Art Museum by jeweler Ralph Esmerian, who is currently serving a six-year term in a federal prison. Judge Robert Drain overruled Christie’s profuse objections to an agreement brokered by bankruptcy liquidation trustee Jay Teitelbaum between Sotheby’s and the American Folk Art Museum (AFAM).
The announcement that the contest had been decided came in one sentence in a report filed with the court on March 25: “The Sotheby’s Objection was resolved and on March 22, the Court overruled the Christie’s Objection and approved the settlement.” That “settlement” named Sotheby’s as the firm to auction all 212 items from the Ralph Esmerian folk art collection, pieces that had been promised gifts of Esmerian to AFAM but were also named as collateral for loans totaling several million dollars. The agreement left AFAM the 53 objects declared as core pieces, as agreed to in an initial settlement plan approved at various times by Sotheby’s, Christie’s, and the trustee.
(We provided a more detailed account of the agreement between the museum and the bankruptcy trustee in our February issue, on pages 11 and 12-A. A full list of all 53 objects AFAM would keep and the 212 “promised gifts” they would surrender to the trustee art group also appeared there.)
As we reported last month, there are vast differences between the positions taken by the concerned auction houses. The prize at stake has great value. Various auction estimates have been floated about, but the key number to remember is that in 2012 trustee Jay Teitelbaum was offered $7 million for the entire 212 objects.
In our April issue, on page 11-A, we described Sotheby’s move to quash Teitelbaum’s proposed agreement and Sotheby’s insistence that any dispersal of the museum folk art assets be through its auction house. In that report we also noted that Christie’s basically accepted the agreement but was reserving its right to file objections later. The situation at the end of February, then, was that Christie’s appeared to accept the proposed agreement, and Sotheby’s was unhappy.
On Monday, March 7, Jay Teitelbaum wrote to Judge Robert Drain that he’d solved the problems that led to Sotheby’s objection, gotten Sotheby’s OK to the agreement, and arranged for the dispersal of the assets. Sotheby’s would be allowed a claim against the estate (the property and money gathered by the trustee to satisfy claims) of $1,372,269 in principal; $232,129 in interest; and $650,000 in legal fees and expenses. The principal was to be paid to Sotheby’s on or before March 30 and from funds already accrued by the trustee. (There was $3,322,746 in the RE Liquidation Trust account at CMS Bank as of February 28.)
“The balance of Sotheby’s claim will be paid at or about the time of the first auction sale of the Trustee Art…,” he told Judge Drain.
And there was this crucial sentence: “Sotheby’s shall be designated by the Trustee as the auctioneer for all the Trustee Art and the (non-Disney) Phillips Nizer Art.” (Teitelbaum holds four art objects worth approximately $550,000 that Esmerian gave to the law firm Phillips Nizer as collateral for money owed to the firm. Phillips Nizer agreed to waive its claims against the estate, and the four objects will be sold for the benefit of all creditors.) All of the standard auction contract language would be in effect, except there would be no seller’s commission.
After March 7, the matters were reversed; Sotheby’s was pleased; Christie’s was angry. On March 15, an irate group of Christie’s lawyers and executives filed 121 pages of objections to the agreement brokered between Teitelbaum and Sotheby’s. The following three accusations and charges were made by two attorneys for Christie’s, Michael Salzman and Gabrielle Genauer:
Christie’s pulled out one of its big guns in its effort to convince the trustee that it was the better auction house. John A. Hays, deputy chairman of Christie’s, chimed in to declare his opposition to Teitelbaum’s motion to settle the stalemate forced by the three competing claims to the Esmerian folk art collection.
Hays wrote that Christie’s had the stronger auction record when it came to selling folk art. He noted, “Christie’s American folk art department achieved substantially superior results as compared to Sotheby’s in the January 2013 American folk art auctions. We sold a total of $15 million worth of property, as compared to estimates from $7.6 million to $11.5 million (not including buyer’s premiums). In contrast, Sotheby’s reported that it sold just $10 million worth of property, as compared to its pre-auction estimates of $10.9 million to $18.4 million.”
Hays also noted that splitting an auction between two firms was not an uncommon practice, and cited its positive experience with works consigned by the Philadelphia Museum of Art to both Christie’s and Sotheby’s.
Christie’s submitted as evidence reams of documents signed by Esmerian, placing liens on his collection— signed promissory notes and promises of exclusivity to Christie’s in the case of default on any of the many loans, naming fine art, jewelry, and folk art and other material as collateral.
Christie’s included copies of positive press notices attesting to Christie’s success in selling a variety of material. Among those papers were these selectively chosen words from John Hays: “As reported in a Wall Street Journal article [February 1, 2013] …in the January auction, Christie’s ‘saw its strongest results since before 2008,’ whereas, in contrast Sotheby’s reported ‘soft sales.’”
Christie’s made sure that the submitted material included copies of the U.S. Attorney’s reports describing the extent of the crimes committed by Ralph Esmerian, the over $210 million loss from various frauds, the numerous false statements made during bankruptcy proceedings, and his six-year prison sentence.
Christie’s offered several suggestions for a settlement it could accept. At the very least, Christie’s wrote, “obvious common sense dictates that Christie’s be given the right to market and sell the twenty objects subject to its own security interest.”
No one reading through the various materials presented by Christie’s could deny that it had been wronged by Ralph Esmerian and had every right in the world to be angry. But, as Christie’s alluded, was it being victimized again by a bankruptcy trustee who awarded its promised auction rights to a competing auction house? Did this happen because of its own action in not entering an objection to the agreement during a specific period, by reserving the right to object later?
Christie’s filed its Reservation of Rights document with the U.S. Bankruptcy Court on February 19, and noted it was doing so only because some other party might file an objection that could change the whole complexion of the agreement.
On March 15, Christie’s filed the several documents listed above with its objection to the settlement motion. Five days later, on March 20, trustee Teitelbaum entered his 28-page response to Christie’s objection. He threw cold water into the face of Christie’s claims. “Christie’s Objection is nothing more than the complaint of a disgruntled auctioneer,” and the “Objection is not only irrelevant to the disposition of the Motion, but it demonstrates that Christie’s has placed its interests above the creditors to whom it owes a fiduciary duty.”
Teitelbaum also said that Christie’s objection was untimely and reminded Judge Drain that “The deadline for filing objections to the Motion was February 19.” As noted above, Christie’s filed its objection on March 15.
On March 25, Teitelbaum filed a Case Status Memorandum with the court. He reported that he and various other professionals handling the bankruptcy details had filed timely, necessary reports regarding their progress in running down various assets and settling other issues. He attached for the judge’s signature a proposed order approving his settlement, which contained the following language:
“[T]he Liquidating Trustee has received the requisite approval of the Oversight Committee to (a) settle the claim of Sotheby’s….” and “(b) dispose of the Trust Assets by public auction to be conducted by Sotheby’s…. ”
Judge Robert Drain signed the motion on March 29 giving Teitelbaum the authority he needed to “dispose” of the assets.
That appeared to be the final word on what would happen to AFAM’s much-contested trove of folk art. The museum would retain its core 53 pieces; the remaining approximately 212 items could be sold at an auction conducted by Sotheby’s in the future. Trustee Teitelbaum was to coordinate with Sotheby’s in setting up the details of the auction. There will be no seller’s commission. There will probably be a buyer’s premium.
Did Judge Robert Drain give a specific reason when he overruled Christie’s objection? We asked Teitelbaum if it was the “untimely” factor he cited above.
“No, he did not specifically rule that it was untimely,” Teitelbaum told us. “He ruled that based upon all of the facts and circumstances including the asserted liens and claims of Sotheby’s and Christie’s, the settlement was a reasonable exercise of my business judgment.” That was the situation as of Friday, April 5.
On that date M.A.D. learned that an auctioneer and a dealer in folk art had joined forces to make an offer for the 212 objects in the RE Liquidation Trust. We asked Teitelbaum flat out if he could still go the private sale route or sell through another auctioneer, especially since the language he included in the proposed order signed by Judge Drain seemed to slam shut that door, namely, that the trustee had the right to “dispose of the Trust Assets by public auction to be conducted by Sotheby’s.”
On the evening of Saturday, April 6, Teitelbaum replied, via an e-mail message. “I can entertain private offers if they are going to take it all. No guarantees I can accept, as I will have to deal with Sotheby’s and their commission.”
Will the 212 folk art treasures ever go under the hammer at Sotheby’s? Will Christie’s jump back into the fray when it learns that the bonanza might escape the clutches of Sotheby’s? Will a deep-pocketed collector emerge from the shadows to best them all with one humongous offer? At this point, who knows?
Both Sotheby’s and Christie’s have declined to comment on any aspect of this report.
Originally published in the May 2013 issue of Maine Antique Digest. © 2013 Maine Antique Digest