Detroit Bankruptcy Update Fall 2013

1.Detroit Institute for Art Makes Move to Engage State to Acquire Its Art
 DETROIT: The New York Times’s Randy Kennedy finally provides an inkling of the real story beneath the struggle over the Detroit Institute of Arts’s collection. To recap, the city bought much of the art contained within the museum. The region is eager to keep a world class museum. The surrounding counties have responded with alacrity by footing the museum’s operating costs with local taxes.

The only remaining issue has been how to help the City of Detroit realize the gain in value from the art it purchased without actually selling the art. This, not a philistine distaste for art as so many critics have leapt to assume, has been the real issue. Although it is never ideal for a museum’s collection to be treated as financial asset, the situation was created long ago. Now the Detroit Institute of Arts is putting the issue squarely on the table by appealing to the state of Michigan directly to save the museum’s art. If the proposal moves further, it will be a political victory for Emergency Manager Kevyn Orr who has been playing some very high level chess: The new proposal would ask the state to begin providing substantial funding to the museum that would allow the museum to provide money to the city that might otherwise be found only by selling art. At a business luncheon on Thursday in Detroit, Mr. Orr said that the museum might consider long-term leases of art works as another way of avoiding any sale. “I’m deferring to them to save themselves,” he told business leaders, referring to the institute.
The museum’s proposal for state help was described as a political long shot by many leaders
interviewed by the Detroit Free Press, who mentioned the competing demands for state money and the sensitivities over a city institution changing hands. “At first blush it sounds like it satisfies Kevyn Orr’s bottom line,” said Bert Johnson, a Democratic state senator, “but the continued divestiture of Detroit’s assets itself is implausible for me.”
Detroit Institute of Arts Mulls Transfer to State (Artsbeat/NYTimes)

2. NEW YORK At a packed, two-hour meeting at Manhattan’s Grolier Club last night, art dealers, museum curators, and other art world types sat rapt as a panel of high-profile experts held forth on the Detroit municipal bankruptcy filing and its possible implications for the billion-dollar-plus collection of the Detroit Institute of Arts.

What became clear during the panel, which was organized by the International Foundation for Art Research (IFAR) and moderated by its executive director, Sharon Flescher — and during the lively question-and-answer session that followed, in which organized art-world resistance and Nazi looting were invoked — was that those who oppose breaking up the collection are right to be worried.

This past spring, alarm bells went off in the art world when Kevyn Orr, the emergency manager appointed to oversee the city’s finances by Governor Rick Snyder, said that the DIA could “face exposure to creditors” if the city filed for bankruptcy — as it proceeded to do in July. Although a spokesman for Orr told the Detroit Free Press that “We have no interest in selling art,” he also said that the DIA’s collection would be considered part of the city’s assets, and in August Orr hired Christie’s to appraise some of the massive collection, a move that drew outrage from many observers. That $200,000 task was supposed to have been completed by the middle of this month but is still ongoing, the emergency manager’s office confirmed.

Left to right: Frank Robinson, Richard Levin, Graham W. J. Beal, Samuel Sachs II (photo by Steven Tucker)

The panel featured Graham W.J. Beal, the director, president and CEO of the DIA since 1999; Samuel Sachs II, the museum’s director between 1985 and 1997, and currently president of the Pollock-Krasner Foundation in New York; Richard Levin, a partner at Cravath, Swaine & Moore who is advising the DIA; and Frank Robinson, a former director of the Johnson Museum of Art at Cornell University, the Museum of Art at the Rhode Island School of Design, and Williams College Museum of Art.

Sachs kicked off the discussion by providing an overview of the DIA’s history, explaining how the 128-year-old institution came to be city-owned and “how we got here today.”  In  1919, he explained, when a group of enthusiastic citizens known as the “founder’s society” merged the museum with the city government, there were numerous benefits; the founders were freed to focus on matters like acquisitions and exhibitions while the city, one of the wealthiest and fastest-growing in the U.S., could be counted on to supply things like “floor wax and museum guard uniforms.”  (Another benefit was forestalling a planned 25-cent admission fee.) It was “a marriage made in heaven, as long as both parties had money,” Sachs said, and one that actually served to preserve and protect the collection. “I will talk in a few seconds about the wheels coming off the bus,” he added.

Beal said the museum has received confusing and mixed messages in recent months. “As soon as talk became serious about bankruptcy and the collection as an asset became obvious to everyone, we harbored what turned out to be forlorn hopes that the governor would decide it was politically the bravest thing to do to take [the collection] off the table. But he took another course; he decided, I presume, to take the emergency manager’s advice to leave us on the table.”

Many in the audience were surprised to hear Beal say that neither he, nor his chairman, has ever yet had a meeting with Orr. “From my point of view, it’s very strange,” he said.

Beal said he and his team have had several meetings with restructuring specialists. “We have spent considerable time doing our due diligence and looking at the possibilities of what might be feasible.” Beal said renting or loaning parts of the collection is an experiment the museum has tried in the past, but that it is not a viable way of monetizing the collection. He also noted that a lengthy report issued by the state’s attorney general in June had weighed in on the matter, saying that the DIA collection “may be owned by the city of Detroit but that it’s held in the public trust and as such, cannot be used to settle the city’s debts.”

 “After that [report], it becomes much murkier,” Beal said. His attempts to arrange a meeting with Governor Snyder have been met with “an effective stiff arm,” he said, and “in a way we are kind of i
n a cloud of unknowing.”

Levin, the Cravath partner, provided an excellent overview of how complicated the situation is, particularly by laying out how specific the laws regarding a municipal bankruptcy are, in contrast to those of a commercial bankruptcy. “Neither congress nor the court can interfere with any of the city’s properties or revenues — it’s a very important limitation that is not present in any commercial bankruptcy,” Levin said. And “only the emergency manager, not the court and not the creditors, can decide whether to sell the collection.”  (This decision, he added, is subject to two important constraints: what state law says about the emergency manager’s authority to sell; and the fact that the emergency-manager statute stipulates that the sale of assets valued at over $50,000 requires final approval from the governor.)

Levin said the attorney general’s report that the art cannot be sold to settle city debts, may be “persuasive, but not binding” for a court. Assuming Orr pushes for a sale, “some court is going to have to decide whether the attorney general’s opinion is right and the art is protected or not. Creditors will disagree. The matter is going to have to be litigated.”

During the Q&A session that followed, an audience member asked whether conditions could be imposed on a sale, such as partial ownership interest, by which the museum would retain some rights to the works, or limitation of a transaction to an institutional buyer. Levin reiterated that any plan would have to come from emergency manager Orr. Many art experts, meanwhile, suggested that any attempt to sell the art would be met with an art-world boycott, and that no major museum would even touch these works on principal. Walter Liedtke, curator of European paintings at the Metropolitan Museum of Art, sitting in the audience, said: “The important thing to say is that institutions like yours, like my museum — the curators in my department would all resign if the Metropolitan Museum placed a single bid for any one of your objects, even in another department. I know that’s true.”

New York dealer Richard Feigen ratcheted up the evening’s rhetoric by likening the possibility of a sale to a notorious 1939 Nazi sale of “degenerate art” at Galerie Fischer in Lucerne, the shadow of which still looms over the respective works today. He rejected one audience member’s suggestion that an interested buyer, then or now, might feel they were saving or protecting the works. “The Nazi regime took them off the wall and put them up for sale. Theses were things for which they thought they could get money.”

And David Nash, another New York dealer, argued that the idea of the art world heroically resisting a sale was unrealistic. “I would like to like to think that,” he said. But even if American institutions and collectors refused to buy “there are dozens of very rich buyers outside the country, including in Qatar, Russia, and perhaps China” that might step up.