In re Rothko
43 N.Y.2d 305, 372 N.E.2d 291, 140 N.Y.S.2d 449 (1977)

  • Rothko died. His will left a number of his very valuable paintings to his estate.
  • The three executors, Reis, Stamos, and Levine quickly made a deal with the Marlborough Gallery (and a subsidiary) to sell 700 of the paintings at a 50% commission.
    • Reis just so happened to be the director, secretary, and treasurer of Marlborough. (Can you say Conflict of Interest…?)
    • Stamos was an artist who was trying to get his work sold by Marlborough.
    • Rothko had sold paintings through Marlborough before he died, but at only a 10% commission.
  • Rothko’s kids (Kate and Christopher), and the New York Attorney General sued to have the executors removed and the contracts cancelled.
    • Part of Rothko’s estate was to go to the State of New York, which gave them standing to enter the case.
  • The Trial Court issued a temporary restraining order to stop selling the paintings, but Marlborough sold 57 more.
  • The Trial Court found that all three executors had breached their fiduciary duties. The executors appealed.
    • The Trial Court found that Reis and Stamos had a conflict of interest and acted in bad faith.
      • The Court imposed a $9.2M fine for the appreciated value at time of trial for the paintings sold.
        • That’s the difference between what the paintings were sold for and what the value of the paintings at the time the court case was decided.
    • The Trial Court found that Levine did not act in the best interest of the beneficiaries.
      • The Court imposed a $6.5M fine for the actual value of the paintings sold at time of sale.
        • That’s the difference between what the paintings were sold for and what they were worth at the time of the sale.
    • The Trial Court imposed a $3M fine on Marlborough for contempt for continuing to sell paintings.
  • The Appellate Court affirmed. The executors appealed.
  • The New York Supreme Court affirmed.
    • The New York Supreme Court found that there was more than adequate evidence to show that the deal was neither fair nor in the best interest of the estate.
    • The New York Supreme Court found that there was clearly a conflict of interest.
    • The New York Supreme Court found that appreciation damages are appropriate where there is a duty to retain, and date of sale damages where there is authorization to sell.
      • Marlborough sold the Rothko paintings for $6.5M, but within a short time, those same paintings were worth $9.2M.
      • The executors in this case had no duty to sell off the paintings, if they had thought it out more thoroughly they would have come to the conclusion that Rothko’s work was rapidly appreciating in value and that the paintings should not have been sold at that time. Therefore, they were responsible not only for the damages at time of sale, but also for the loss of appreciation.
        • These days you can’t touch a Rothko painting for less than 50M each.
    • The New York Supreme Court found that the executors should pay their own attorney’s fees.
      • Courts have held that when there is a breach of fiduciary duties without willful misconduct or malfeasance, then the trust pays the attorney’s fees, but in this case, there was obvious willful misconduct and malfeasance.