On Friday, March 22, a meeting was held in the U.S. Bankruptcy Court in White Plains, New York, before Judge Robert Drain. The reason for the meeting was to hear arguments, pro and con, concerning the liquidation trustee’s motion to award the auction of the Esmerian collection to Sotheby’s.
Ralph Esmerian had promised for years, perhaps even as early as 1973, to give much of his folk art collection to the American Folk Art Museum (AFAM). In 1973, Esmerian became a trustee of AFAM. In 1977, he became its president.
Unfortunately, many of the pieces he promised to the museum also had been named as Esmerian’s security for multimillion-dollar loans from Sotheby’s, Christie’s, Merrill Lynch Mortgage Capital, and others. (We first reported that those pieces were entailed and presented a major problem for the museum in our March 2008 issue, p. 11-A.)
On April 15, 2011, Ralph Esmerian pleaded guilty to a three-count indictment of wire fraud, bankruptcy fraud, and concealment of assets. He is now serving a six-year sentence in a federal prison.
An agreement was reached between Sotheby’s, Christie’s, and AFAM that enabled the museum to keep 53 objects that were central to its mission. The remainder of the collection (Jay Teitelbaum, the liquidation trustee, said “327 pieces of art work”) was transferred to an entity named Trustee Art. Initially, both Sotheby’s and Christie’s agreed with the trustee’s proposed sale of the Trustee Art, but after Sotheby’s was chosen as auctioneer, Christie’s entered strong objections. Present at the March 22 meeting in White Plains were attorneys representing Sotheby’s, Christie’s, the American Folk Art Museum, and the Liquidation Trust, two other attorneys, and trustee Jay Teitelbaum.
The meeting was electronically recorded and later transcribed, but access to it was restricted until August 22. The collecting world now knows that Judge Robert Drain agreed with Teitelbaum’s decision to sell the Trustee Art at a Sotheby’s auction. The order approving the sale was filed with the court on March 29, one week after the meeting in White Plains.
What interested parties did not know was how the decision was reached at that March 22 meeting. This report has been edited for space and comes from the 40-page transcript. We hope it lifts the veil of secrecy somewhat.
Jay Teitelbaum was the primary speaker at that meeting. His law firm, Teitelbaum & Baskin, LLP, handles the bankruptcy proceedings on a day-to-day basis and was paid monthly sums ranging from $14,366 to $52,234 (and up) over this past year. He brokered the negotiations between Christie’s, Sotheby’s, and AFAM and convinced the players that releasing their liens on Esmerian property was the only solution to the financial nightmare. He was responsible for awarding the auction to Sotheby’s.
Teitelbaum addressed the court:
“[W]e read the pleading that was filed by Christie’s after the filing of its reservation of rights, the pleading doesn’t go to one bit of the merits of the motion. It goes to—well, let’s just put it the way it is—the whining of a disgruntled auctioneer, who is not happy that I made a business decision to auction the trustee art, in the event this Court should approve the motion.”
He spoke about something he called “a delay factor.”
“We are dealing with American folk art, not quite as popular as the Twinkie, if you will, and not as well known as the Twinkie, but nonetheless, well known to the folk art world and people who collect it.
“There are basically two times during the year when we can maximize the value of this, and it’s in December—there’s a December sale and a January sale. If we delay, we lose another year in this case. We’re dealing with 327 pieces of art work that need to be categorized, that need to be documented, that need to be put in a catalog, that need to be advertised. It takes time.”
Teitelbaum appears to have presented Judge Drain with a copy of Stacy Hollander’s 2001 book, American Radiance, which documented and described in detail Ralph Esmerian’s collection of folk art but also carried the now unfortunate subtitle, “The Ralph Esmerian Gift to the American Folk Art Museum.”
Teitelbaum went on, “Your Honor, we had delivered a courtesy copy of this book to the Court, and it was put together by and for the Folk Art Museum…a compilation of what we are dealing with…everything from, you know, little pieces of ceramic to a horse from a carousel.
“And it’s taken—and it took Mr. Esmerian, I think, fifty-plus years to put this together.
“So when I say that the folk art community is excited to see this collection hit the market, I am not—I’m not speaking out of turn.
“The entire collection, your Honor, conservatively, you know, could be worth fifteen, $20 million, could be more.”
A number of pages in the transcript detail the discussions about who held liens on what parts of the collection and who would and would not give up certain claims if another party failed or succeeded in having claims decided in their favor.
Finally, Jay Teitelbaum cut to the heart of the matter. “What we’ve got here, I didn’t go to Joe’s Auction House to try to sell this. I made a choice between Sotheby’s and Christie’s, two of the preeminent auctioneers in the world. The economics of the deal to the estate, just so the Court is aware, no issue. The estate is not paying five cents toward expenses of a sale. There is whatever the buyer’s premium is that’s in the market at the time will be the buyer’s premium, paid by buyers. The estate is not paying anything.
“The fact of the matter is Christie’s may do better today than Sotheby’s, and Sotheby’s may do better tomorrow on a sale than Christie’s. They’re both tremendous auctioneers….
“The fact is that business judgment, Your Honor, is that business judgment that I made as part and parcel of an overall resolution of this dispute.”
There was a problem with the UCC forms filed with the state of New York indicating security interests in certain Esmerian-owned objects. Christie’s named “Ralph Esmerian, Inc.” as the owner, but Sotheby’s pointed out that the name was wrong—“Ralph Esmerian” was the owner. That fact invalidated the UCC forms, Jay Teitelbaum said, and the judge appeared to favor that argument.
Judge Drain addressed Christie’s attorney Michael Salzman, “Now you may feel you’ve been jerked around,” and Salzman answered, “We have been.”
The judge interrupted, “But this isn’t a normal situation. This is bankruptcy. All right? And the jerking around is not the question of someone just deciding whether to hire an auctioneer or not, it’s whether someone is able to sell this collection or not.”
He continued, “So yeah…you can put something in a blog about how Sotheby’s jerked you around; not you, but Christie’s can.”
Michael Salzman again asked the judge to overturn Teitelbaum’s decision, and, rebuffed, offered his take about what that decision meant: “The situation, as dished up by Mr. Teitelbaum now, would have art that’s subject to Christie’s lien being sold by Sotheby’s, which is a—from the art world point of view, would be completely bizarre. It would be like having a Coke machine in the office of the president of Pepsi. I mean, the idea that Sotheby’s, at the rostrum, is selling stuff for the benefit of Christie’s, they have such an apparent conflict of interest, how could they even—how could we do that?”
Judge Drain answered, “Well…they’re not working for Christie’s, they’re working for their client, the trustee.”
The judge noted that the trustee’s judgment to sell the material claimed by both Sotheby’s and Christie’s in a single sale was sound advice.
On that subject, he answered attorney Salzman’s question about Sotheby’s right to sell the Trustee Art and Salzman’s statement that Christie’s had an equally valid right: “[I]f that were the only basis, and the two of you were both saying we have a right to sell our stuff…and it was the trustee’s judgment that selling them separately would have impaired the value of the collateral, I would authorize a third auctioneer to do it.”
That was the first time the possibility of an auction house other than Sotheby’s and Christie’s was raised in any of the reams of documents filed with the court.
Judge Drain commented, “[I]t appears to me it makes sense to sell them all at once, as a collection assembled by a collector, who, apparently, with the assistance of Sotheby’s and Christie’s, had a very discerning eye—there’s no dispute about that. It’s one thing Mr. Esmerian can be proud of. It should be sold by one seller.”
The judge surprised the attorneys with the news that an objection had been received from none other than the jailed Ralph Esmerian.
A surprised Michael Salzman asked, “Really?”
The judge went on, “And all he said was he wished it all could stay together. And I guess we all wish that, too. But unfortunately, the basis for his gift, unfortunately, was compromised by the fact that he owes a lot of money to a lot of people. And I think that he should take some comfort that fifty-three items, which, just looking at the inventory, are pretty choice items, are in the collection.
“And I guess there is some real hope here that people who are patrons of this museum, including perhaps Christie’s and Sotheby’s themselves, because it enhances their dealings in this market in the future, may buy the remaining assets, or some of them, in order to recontribute them. And that’s really all he was getting at.”
Judge Robert Drain approved the auction plan as put forward by trustee Teitelbaum. The liens both parties had held were discharged, and the meeting was over. Sotheby’s will offer the Trustee Art at an auction on a date in January that has yet to be disclosed.
Originally published in the November 2013 issue of Maine Antique Digest. © 2013 Maine Antique Digest