A Cautionary (Print Studio) Tale for Artists

Lawsuits can be messy affairs, and the one filed in 2013 by financial investor Edward Houillion against a print studio (Seikilos FX Studios) in Dallas, Texas, is a mess that has sucked in a number of artists. Houillion, as head of a limited liability company, agreed to invest in the print studio and then claimed that the owners of the studio misrepresented their financial situation and business plan in order to attract an investment, then mismanaged assets, diverting funds from the business to their own personal use and not providing a proper accounting to Houillion. Claims, counterclaims, you're a liar, no you are -- let them fight it out.

As part of the wrangling, Houillion seized control of the print studio space and its assets, which included original artworks (paintings) that eight or nine artists had brought in to create print editions -- Houillion also seized completed print editions -- using the studio's patented digital imaging technology. "The image-capture technology creates a really unique look," said artist Victoria Moore of New Smyrna, Florida, "better than any other studio I've ever worked with has produced."

Twenty-eight of Moore's paintings are among the seized artworks, stored somewhere while this lawsuit drags on. "They have my best work and the digital files for it, so I haven't been able to make reproductions," she said. "I missed the holiday season, because of this lawsuit."

It is not difficult to feel her pain, but there is a cautionary tale in this for all artists, and not just painters, who turn over their work to someone else. If Seikilos FX Studios were a commercial art gallery in Dallas instead of a print studio, the artwork belonging to Moore and the other artists could be picked up by them without much hassle; the artist or lawyer representing the artist would file a proof of claim, such as a consignment agreement, to the court-appointed trustee in order that artwork be returned to the artist rather than liquidated as part of the dealer's assets to pay creditors. That is because in Texas, as well as in 31 other states and the District of Columbia (http://www.vlaa.org/?view=Artist-Gallery-Consignment-Statutes), artist-dealer consignment statutes exist that identify all artwork and proceeds from sales of art consigned to a gallery as trust property and not part of a gallery's assets. "[A] work of art delivered to an art dealer for exhibition or sale and the proceeds from the dealer's sale of the work of art are not subject to a claim, lien, or security interest of a creditor of the dealer," according to the Texas law.

In the other 32 states, artists may file a form under the Uniform Commercial Code with the state attorney general's office (the cost is approximately $125) that gives them prior right to repossess consigned pieces should the gallery go bankrupt. An artist (or the artist's lawyer) filing a UCC-1 form or a claim with a bankruptcy court would do so in the state in which the corporation was formed, rather than were the gallery is located. Reports on more than 80 million businesses are available through Dun & Bradstreet, many of which were formed as corporations in the state of Delaware, where corporate taxes are relatively low and the ability to sue individual corporate shareholders for misdeeds is somewhat more difficult than in other states. As businesses, galleries are more likely to be liquidated than file for reorganization under the bankruptcy laws.

The problem Moore faces stems from the fact that Seikilos FX Studios is not an art dealer, which is defined in the Texas law as "a person in the business of selling works of art." One of the lawyers representing Houillion, Matthew Bourque of the Dallas-based The Johnson Firm, stated that all artwork was seized, "because we need to determine the ownership of it. It isn't clear to us who owns the art."

This isn't just an issue in Texas. The Illinois Consignment of Art Act defines a dealer "as a person engaged in the business of selling works of fine art." That law also does not apply to persons who are exclusively engaged in the sale of goods at public auction, nor would it apply to someone who may sell works of art but as a side business, such as a restaurant or café owner. The New York statute includes auctioneers among dealers as "art merchants," but restaurant and café owners would not be among them, regardless of how often they exhibit and sell artworks. Print studios, sculpture foundries, conservation labs, framers, the sellers of art supplies, jewelry and furniture shops -- anywhere that artists might leave their work that isn't a place where the sale of artwork is the principal business -- could have all their assets seized by creditors in the event of a lawsuit or bankruptcy, and the artwork could be tied up in court for months or longer.

In the event of a lawsuit or bankruptcy of some business that is not a full-time art gallery, an artist's consigned work would be seized and become part of a bankruptcy proceeding. There, the outlook is not favorable to the artist. First in line for repayment are "secured" claims, such as bank loans or mortgages, followed by "priority" claims (taxes owed to the government, for instance), and finally "unsecured, nonpriority" claims, including debts to credit card companies, suppliers and, in the case of print studios, foundries, restaurants or any place that may have artwork, artists. John Winter, a bankruptcy attorney in Philadelphia, estimated the return for unsecured creditors to be seven or eight cents on the dollar, "20 cents if you're very lucky."

Worrying whether or not a print studio, foundry, conservator or restaurant may go bankrupt need not prey on an artist's mind, according to Chicago arts lawyer Scott Hodes. "Artists simply should file a UCC-1 form, which tells the courts that the artwork belongs to the artist and isn't the property of whomever is in bankruptcy court."