Who paid Berkshire Museum's legal bills? Clues point in one direction
PITTSFIELD — As the Berkshire Museum battled in court to sell art, some wondered how the financially beset institution could afford its top-tier Boston law firm, where hourly fees of the best lawyers exceed $1,000.
The museum wouldn't say then — or now.
But as two more paintings come up for auction Friday, a clue as to who paid the museum's lawyers lies tucked in a court order.
On April 5, in a breakthrough for the museum, a justice with the Supreme Judicial Court allowed it to sell up to 39 works of art, on the condition that "the sale price net of any fees, commissions, or costs retained by Sotheby's ("net proceeds") does not exceed $55M."
Two words in the passage — "costs retained" — carve out what attorneys who have followed the case say might be the only way for the museum to cover its litigation expenses out of art sale proceeds.
The wording in the SJC judgment didn't come as a surprise to WilmerHale, the museum's law firm.
Its own lawyers wrote the nearly five-page order that later carried Justice David Lowy's name, having submitted it as a "proposed judgment" when they reached terms with Attorney General Maura Healey in February to allow art sales under certain conditions.
The document does not say it is permissible for the museum to subtract legal costs from the proceeds it receives from Sotheby's. But the wording leaves the door open to having such costs come off the gross proceeds taken in by Sotheby's, which, in turn, would pay a lesser total to the museum.
But that presumes that the auction house has itself been writing big checks to WilmerHale.
As of Tuesday, three days before the next Sotheby's auction, the museum reports that it has taken in a net of $51.7 million, $3.3 million short of the amount allowed.
An attorney with experience in corporate law who reviewed the wording about "costs retained" at The Eagle's request called the phrasing unusual, since costs are typically "incurred" rather than "retained."
An official with Healey's office, speaking on background, said the judgment does not allow the museum on its own to subtract legal fees paid to fend off two lawsuits and respond to an investigation by Healey's office.
"There is no way to read the court order as allowing that," the official said.
But the "costs retained" provision would have enabled Sotheby's to carry those costs in-house, then settle up with the museum later. The auction house had a clear financial interest in clearing the legal path to sales, since it charges buyers substantial fees on top of the "hammer price" that decides an auction's sale.
Sotheby's has a history with WilmerHale. It hired the law firm's New York City office to handle a 2011 dispute involving a Khmer statue that Sotheby's planned to sell at auction, though Cambodia claimed that the work had been stolen from the country. The case was settled before trial and the statue went back to Cambodia.
Healey's office did not choose to fight the question of whether the museum could find another means of folding its legal bills into the art-sale process.
"In this case, we did not inject ourselves with the auction house relationship with the museum," the official said, speaking on the condition of anonymity.
A Boston attorney familiar with the case, who also agreed to speak on background, said that the SJC justice would have reason to expect that "fees, commissions, or costs retained by Sotheby's" would apply only to relatively incidental expenses related to the art sales.
"But not the cost of an underlying litigation. I don't think in his wildest imagination would he have thought it included legal fees," the attorney said of Lowy. "It really doesn't, for me, make any sense at all."
The attorney said that a fair reading of the passage about "costs retained" would not accept that it includes as "big a nut" as the legal fees, which, he said, would likely run into multiple millions of dollars.
The Eagle provided the museum with a summary of this analysis and invited it to dispute the suggestion, given the wording crafted by WilmerHale, that Sotheby's provided upfront payments to the firm.
Instead, the museum again declined to say who paid its legal bills. Its spokeswoman, Carol Bosco Baumann, said it will not comment "consistent with confidential contractual arrangements with both Sotheby's and WilmerHale."
Darrell Rocha, a spokesman for Sotheby's, did not respond during business hours Tuesday, when provided with the same scenario outlined to the museum.
Some details on the museum's legal expenses might be made public eventually, when it files a required report with Healey's office.
Baumann said a future report will provide information on legal costs paid by the museum from July 1 to Dec. 31, 2017.
That period includes several months in which William Lee, a WilmerHale partner, led a team at his firm handling the museum's litigation. But it does not include intensive filings or court appearances in 2018, including closed-door talks between the museum and Healey's office that led to a joint request to the SJC that the sales be allowed as a way for the museum to pull out of financial distress that included annual budget deficits of $1 million.
This week's sales
Friday's auction proceeds are unlikely to get the museum to a net of $55 million.
Baumann said museum trustees will decide after Friday's auction whether to list other works for sale. The SJC judgment allows it to sell works in up to a maximum of three groups.
This week's sales, if they go through, would conclude a second batch of sales and bring the number of pieces sold to 22.
Healey's office, though, is calling for Friday's sale to be the end.
"We have communicated to the museum that [these] sales should be its last. We are confident that the museum is ready to move forward," said Alex Bradley, a spokesman for Healey.
In direct communication with David W. Ellis, the acting director of the museum, Healey's office has said "in no uncertain terms" that it opposes the scheduling of any additional sales, with an official saying, "We told them they really need to turn the page."
Museum paintings up for bid Friday include "The Last Arrow" by Thomas Moran and "Hunter in Winter Wood" by George Henry Durrie. The auction begins at noon.
The Moran work, an 1867 oil-on-canvas piece given to the Berkshire Museum in 1915 by its founder, Zenas Crane, carries a bid range of $1.2 million to $1.8 million.
Durrie's 1860 oil-on-canvas scene, given to the museum in 1947 by the W. Murray Crane family, is listed with a bid range of $300,000 to $500,000.
If both sell at the high range, the museum could come within $1 million of its target.
Larry Parnass can be reached at firstname.lastname@example.org, at @larryparnass on Twitter and 413-496-6214.
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