In re Estate of Rothko

The famed painter Mark Rothko died in 1970, leaving 798 paintings in his will. In 1969, Rothko entered a contract with the Marlborough Gallery (Marlborough) (defendant) to sell his paintings for a 10 percent commission. The will’s executors were Bernard J. Reis, Theodoros Stamos, and Morton Levine (the executors) (defendants). Reis was Marlborough’s director, secretary, and treasurer. Stamos was an artist under contract with Marlborough. The executors disposed of all of Rothko’s paintings for less than their value, under two contracts. The first contract sold 100 paintings to a corporation named Marlborough A.G. (MAG) (defendant). The second contract consigned approximately 700 paintings to Marlborough and granted Marlborough a sales commission of 40 to 50 percent for each painting. Rothko’s daughter, Kate Rothko (plaintiff), sought the executors’ removal, an injunction preventing the paintings’ disposal, rescission of the contract, return of the paintings, and damages. Kate was joined by the guardian of her brother, Christopher Rothko (plaintiff), and the state attorney general (plaintiff), who represented a foundation that benefited from the will. The trial court found that Reis and Stamos breached their fiduciary duties by entering the contracts with conflicts of interest. The court also found that Levine breached his fiduciary duties by following Reis and Stamos with awareness of their conflicts of interest. The court removed the executors, found that the paintings had been sold for inadequate value, and voided the contracts. The court also found Reis, Stamos, Marlborough, and MAG liable for the paintings’ appreciated value as of the time of trial and found Levine liable for the paintings’ value as of the time of sale. The appellate division affirmed. On appeal, the executors, Marlborough, and MAG objected to the damages and the court’s use of the no-further-inquiry rule, which allows rescission of a self-dealing transaction regardless of the transaction’s fairness.