Estate of Mark Rothko

Mark Rothko died on February 25, 1970, at 66. He took his own life.

He left 798 paintings. The Court of Appeals would later call them an asset of “tremendous value,” and describe what his executors did with them in a sentence that is unusual for that court: “that conduct as portrayed in the record and sketched in the opinions was manifestly wrongful and indeed shocking.”

The will was admitted to probate on April 27, 1970. Letters testamentary went to three men: Bernard J. Reis, an accountant; Theodoros Stamos, a painter; and Morton Levine, an anthropology professor and a friend.

Twenty-four days later, on May 21, 1970, they disposed of every painting Rothko had left.

May 21, 1970

The first agreement sold 100 paintings to Marlborough A.G., a Liechtenstein corporation, for $1,800,000 — $200,000 on execution and the remaining $1,600,000 in twelve equal, interest-free annual installments over twelve years. An interest-free twelve-year payout is a price reduction wearing a disguise.

The second consigned roughly 700 paintings to Marlborough Gallery, Inc., the New York corporation. The gallery could sell up to 35 paintings a year from each of two groups, pre-1947 and post-1947, for twelve years, at the best price obtainable but not less than appraised estate value. Its commission was 50% — 40% on works sold to or through other dealers.

Bernard Reis was, at the same time, a director, secretary and treasurer of Marlborough Gallery, Inc. He was on both sides of the deal.

Rothko himself had a 1969 contract with the gallery at a commission of 10%. Whether that agreement survived his death was a live question worth a great deal of money — and, as the Surrogate put it, a question a fiduciary in a dual position could not have faced impartially.

The daughter, the guardian, and the Attorney-General

Kate Rothko, the painter's daughter, petitioned the Surrogate's Court of New York County to remove the executors, rescind both agreements, enjoin the Marlborough corporations from disposing of the paintings, recover what they still held, and pay damages. The guardian of her brother Christopher Rothko adopted her petition. The Attorney-General of New York joined on behalf of the ultimate charitable beneficiaries of the Mark Rothko Foundation, the residuary legatee.

The Surrogate issued a temporary restraining order on June 26, 1972 and a preliminary injunction on September 26, 1972, barring any sale or disposition of the paintings without the court's permission.

Paintings were sold anyway. The Attorney-General moved for contempt.

The trial ran 89 days without a jury before Surrogate Millard L. Midonick.

Three executors, three different failures

The Surrogate's findings, affirmed on appeal and therefore beyond challenge in the Court of Appeals, sorted the three men precisely.

• Reis — conflict. A director, secretary and treasurer of the consignee gallery. The Court of Appeals noted his other inducements too, including nearly a million dollars of sales from his own and his family's art collection through the Marlborough interests. On the argument that he had no conflict, the court's line was that the assertion “indulges in sheer fantasy.”
• Stamos — conflict. A “not-too-successful artist, financially,” in the Surrogate's phrase, for whom it was an advantage to curry favour with the gallery. He signed his own contract with Marlborough within months of signing the estate's. The court also recorded that Marlborough bought a Stamos painting from a third party for $4,000 during the week in May 1970 when the estate negotiations were pending.
• Levine — no self-interest, and liable anyway. He was found to have acted without bad faith. He was also aware of Reis's divided loyalty, believed Stamos was seeking personal advantage, held his own views on the paintings' value — and followed his coexecutors without investigating or consulting a disinterested appraiser.
• The gallery — chargeable with notice. Marlborough's business was found to be controlled and directed by Francis K. Lloyd. The corporations were held to have known of the executors' breach.

All three executors were removed under SCPA 711. Both contracts were set aside as neither fair nor in the best interests of the estate. The court was explicit that it had not simply applied the “no further inquiry” rule mechanically; it found the deals unfair on their own terms.

Levine's defence — that he acted prudently on advice of counsel — failed on a rule worth memorising: an executor who knows a coexecutor is committing a breach of trust and accedes to it is accountable even if a lawyer told him it was fine. Quoting Meinhard v Salmon, the standard is “not honesty alone, but the punctilio of an honor the most sensitive.”

Appreciation damages, and why they exist

This is the part that made the case a landmark rather than a scandal.

The ordinary rule, stated in Scott on Trusts and the Restatement, is that a trustee authorised to sell who merely sells too cheaply owes the difference between what he should have got and what he got. He does not owe any later rise in value. The policy reason is sensible: if you punish a trustee for the market going up after an authorised sale, no trustee will ever sell anything.

The Court of Appeals seized on the limiting words in those authorities — “merely” and “only”. A breach that consists of more than selling too cheaply is not covered by the limitation. “The same rule should apply where the breach of trust consists of a serious conflict of interest — which is more than merely selling for too little.”

So the estate was entitled to the value of the paintings at the time of the decree. The arithmetic: $9,252,000, being 86 works on canvas at $90,000 and 54 works on paper at $28,000. The decree imposed $7,339,464.72 after crediting amounts already paid to the estate. Levine, having no self-interest, was liable for the date-of-sale value only — $6,464,880. The liabilities were congruent, so paying the largest satisfied the rest.

Marlborough, Marlborough A.G., and Lloyd were separately fined for contempt: originally $3,332,000 for 57 paintings sold in violation of the court's orders, amended in April 1976 to $3,872,000 for 63 paintings.

The Appellate Division affirmed in an opinion by Justice Lane, with two partial dissents on the damages measure. On November 22, 1977, the Court of Appeals affirmed in an opinion by Judge Cooke, with Chief Judge Breitel and Judges Jasen, Gabrielli, Jones, Wachtler, and Fuchsberg concurring.