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The painting was quietly sold off the walls of the Dallas Museum of Art. Now its prior owner claims the resale broke confidentiality agreement.

Red-Faced Squabble Over Secretive Rothko Sale Heads to Dallas Courtroom

The ongoing fight over a painting that was sold while still hanging on the walls of the Dallas Museum of Art heads to a Dallas courtroom today where mega-collector Marguerite Hoffman will try to win a lawsuit that alleges that the buyer of the painting broke a confidentiality agreement. The sale, which you can read about in detail here, strikes to the heart of the secret, backroom dealings of the art market, replete with multi-million dollar mark-ups; double commissions for dealers; and billionaires who speculate and find tax shelters in the highly unregulated art market.

This particular case dates back to 2007 when the three Dallas collectors (the Hoffmans, Rachofskys, and Roses) announced they would give the Dallas Museum of Art their collections upon their death. This “bequest” was celebrated with a large exhibition of the work from the collections at the city museum. While the show was still on view, an untitled 1961 painting by the abstract expressionist Mark Rothko, nicknamed “Red Rothko,” was purchased from Hoffman by David Martinez, a Mexican-born billionaire art collector for $17.6, the second highest price for a Rothko painting at the time according to the Wall Street Journal. Martinez agreed to keep the sale confidential, but it became public when the work surfaced on the Sotheby’s auction block in 2010 where it sold for $31.4 million. There was no secret where the painting had come from; the 2007 DMA exhibition was duly noted in the painting’s exhibition history.

In the lawsuit, Hoffman argues that multiple parties reneged on their agreement to keep the sale confidential, while defendants claim that the period of silence was respected and they never agreed to not resell the painting. In short, Hoffman is embarrassed. She wished to keep the sale quiet because she needed cash a year after her late-husband, Robert Hoffman, passed away. She also embarrassed the Dallas Museum of Art because the sale ropes the city’s museum into what looks like shady, speculative art trade. The painting’s presence in the museum exhibition certainly helped appreciate its value on the auction block, just as the entire three family bequest helps to increase the value of the families’ collections.

The lawsuit will likely have an impact on the binding power of the kinds of confidentiality agreements Hoffman made the buyer of her Rothko sign – agreements which are not uncommon in the art world. But the lawsuit also continues to shine light on the problematic nature of the 2007 bequest of art by the city’s three most prominent collectors. The delayed donation has been hailed as a magnanimous gesture of civic philanthropy, and indeed, the prospect of the museum holding ownership of these three collections will make it an important center for 20th century art. The bequest has already granted the museum open access to these works while the collectors are still alive. But the donation also gives the three collectors a tremendous financial advantage thanks to the association with the museum. The works of art they currently hold — and which, per the terms of the bequest, they are still allowed to buy and sell — appreciate in value because of their relationship to the museum. The Rothko case in particular makes the city’s public museum look like a speculative tool leveraged by its most prominent patrons.

9 comments on “Red-Faced Squabble Over Secretive Rothko Sale Heads to Dallas Courtroom

  1. Interesting analysis, Peter. Certainly more helpful in connecting all the dots than what’s been written elsewhere.

  2. Congratulations, Peter Simek, on telling the truth about the DMA at a time when precious few others have done so such as Michael Granberry of the Dallas Morning News. An awful lot more “house cleaning” at the DMA is in order.
    Council for Artists’ Rights

  3. By the way, how much of a sales commission did the Dallas Museum of Art charge for the Rothko painting?
    Council for Artists’ Rights

  4. I’m unclear why you characterize the sale as “a shady speculative art trade.” You don’t mention anything that supports that description. Merely saying it, it doesn’t make it so. The museum has said that the pieces in each donor family’s collection are expected to change before the gifts become museum property, so it’s not as though the painting was sold out from under the museum. Yes, the promised gifts may have increased the value of the collections — although, again, you offer no evidence other than the fact that the Rothko appreciated in value between the time of its sale to Martinez and its auction. That appreciation may or may not have anything to do with the museum collection. But even if there is a connection, does that mean that donations are verboten because there may be a knock effect on the value of the promised collections?

    It seems to me that you start twitching simply because Hoffman wanted to keep the sale secret, probably because it could cause her personal embarrassment. What’s wrong with a generous benefactor of this city — or anyone else — seeking to avoid embarrassment as long as no public trust is breached and no one is harmed? I think journalists generally find any hint of confidentiality suspect. That’s unfortunate and unfair.

  5. Thanks for your thoughts Jim. Much of the conflict here relates to public perception. To donate a work of art to a museum and then sell it off the walls creates the impression that the donor is using the public museum as a speculative instrument. That’s because, to your point about evidence, a museum is a value-add instrument in the art market. A donated piece that has been accepted by a museum is presumed to be “museum quality,” and thus worth more than other works by that artist.

    Should that relationship between the museum and value necessarily prohibit such “bequest” or promised donations? The tax law doesn’t think so. But it does create a tension between the role of a museum as an institution dedicated to the exhibition, preservation, and interpretation of the world’s cultural heritage, and its practical functioning as a value-add instrument in the art market precisely because of that historical scope. Do these bequests create a situation in which museums’ curatorial decisions are more subject to the whims of the market than they would otherwise be because their future collections are still being exchanged – traded up (or down)? That’s where the issue of public trust comes in, and it is another conversation, though an interesting one.

    I don’t believe Hoffman acted maliciously here, nor was the FAST FORWARD show designed as a cynical way to boost the value of the collections. But the secret-ness is an important part of the convoluted tangle of markets and museums. If Hoffman didn’t keep the sale secret, the Rothko may have sold for more than the 17M. The evidence for that is that it nearly doubled in value in three years since the “secret sale.” The secret-ness of the deal likely decreased its value, and now that that deal is no longer secret, Hoffman is seeking damages. In other words, there is a direct relationship between “secret” and “value,” just as there is a directly relationship between the museum and value. It’s certainly an embarrassing situation, but one that ceased being a private one as soon as the city’s public museum became involved.

  6. There’s always a paper trail with art. Each time the piece goes up for sale, they examine the trail of ownership. Very closely today given the Rothko fakes sold at the Knoedler.

  7. Strapped for cash? She certainly bounced back and started spending on prime real estate in Nantucket…

    http://www.nantucketrealestate.com/NantucketRealEstate/?p=5840

    Nantucket Property Transfers for the Week Ending October 21, 2012

    A house on .37 of an acre at 7 and 9 Grant Ave. sold to Marguerite Steed Hoffman of Dallas, Texas from Bettie S. Kenzie, Trustee Kenzie Nominee Trust, of Easton, Md. for $8,900,000. The property is assessed at $5,077,400. The Land Bank fee is $178,000.

  8. Perhaps she suspected/knew the Rothko was one of the fakes peddled by the Knoedler art gallery….