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Corcoran’s Move to Dissolve Legally & Transfer Art & Building by Cy Près Proceeding Challenged in Court; Decision Very Soon

Accompanying images can be viewed in the August 2014 issue PDF

By Anthony L. Harvey

In a remarkable evidentiary hearing over the course of four separate weeks in late July and early August, 2014, DC Superior Court Judge Robert K. Okun heard arguments from parties proposing — and opposing — the dissolution of the Corcoran Gallery of Art and its College of Art + Design, with its assets and at least $47 million in cash distributed to the George Washington University (GW) and the National Gallery of Art (NGA).

The petition for dissolution, called cy près, argued the merits of revising the Deed of Trust filed by the wealthy Washington banker William W. Corcoran on May 18, 1869 which stated his determination that “in the execution of a long cherished desire to establish an institution in Washington City, to be ‘dedicated to art,’ and used solely for the purpose of encouraging American genius, in the production and preservation of works pertaining to the ‘Fine Arts’ and kindred objects,” he was granting to nine men — two of whom were fellow bankers George W. Riggs and Henry D. Cooke, a third being the railroad magnate Henry Walters who established the Walters Art Museum in Baltimore — real property specified by lot and location and any improvements of that property, an art collection, and future gifts and donations for furtherance of the purposes of Corcoran’s articulated Deed of Trust.

These nine men would serve as a Board of Trustees and on his initiative, their perpetual succession was guaranteed by a Federal charter enacted by Congress on May 24, 1870; that same statute authorized the payment to the trust by the Federal government of rents for its use of land and buildings described in the trust document during the 1860s; the waiving of any tax or fee for the property transfer outlined in the Deed of Trust; and the stipulation that the Trust, in pursuit of the objectives specified in the Deed, would be exempt from any taxes or assessments.

This extraordinary Corcoran dissolution proposal and the filing of the cy près petition stunned but did not surprise the Washington arts community; it simply became another in a series of stunning proposals by the Corcoran Board of Trustees, following as it did a recent startling public announcement by the Trustees of their exploration of selling the Ernest Flagg-designed beaux arts building on 17th Street across from the White House, assessed by DC at $116 million, and the moving of the Gallery and College to another location in the Washington area. (See, “Possible Abandonment of Corcoran Gallery’s Historic Museum Building and Relocation to Suburbs Deplored,” InTowner, page 1, August 2012 PDF;

Other ideas were floated by the Trustees and others, such as talk on the street of moving a scaled down version of the Corcoran to Alexandria, Virginia; another proposing the sale of the Corcoran’s art collection — said to be worth $2 billion — and a concentrated use of those proceeds in support of the programs of the Corcoran College of Art + Design; and the partnering of the Corcoran with universities in the Washington Metropolitan are — especially with the University of Maryland or GW.

The proposal now before Judge Okun stipulates the transfer of title by the Trustees of the Corcoran’s collection of art and $12 million in restricted endowment funds associated with that art to the National Gallery — at no cost to the Gallery, and the transfer, again at no cost, of the Flagg building and the Fillmore School building in Georgetown, which is owned by the Corcoran, to GW, together with no less than $35 million in cash to GW for the purpose of immediate health and safety Flagg building renovations.

GW would also receive at no cost the Corcoran College brand and any other intellectual property belonging to the College (although the name for the College would be changed to that of the “Corcoran School of Art & Design” in the GW University’s Columbian College of Arts and Sciences).

In pleadings filed with the court, and in live argument by counsel for the trustees, a dire and almost desperate financial picture was painted for the court. Asserting that funds which could be ethically used in accordance with the museum and academic accrediting agencies for operations of the Gallery and the College would be completely exhausted in the near term — and there was neither a practicable nor a possible plan for rescuing the Corcoran from hopeless insolvency according to both mid- and long-term projections by the Trustees of the Corcoran’s revenues against its expenditures.

Therefore, in the Trustees’ view, the single, or at least the best, possible solution to the Corcoran’s alleged prior 40 years of never having a viable business plan — and the further assertion of an historical pattern of all but two of the years since 1985 being years of running deficits, was the cy près approach of giving the art and its restricted endowments to the National Gallery and the no-cost transfer to GW of the College and the Corcoran’s buildings and at least $35 million in cash for immediate renovations to the Flagg building, a structure that includes the William Andrews Clark wing housing the art collection bequeathed to the Corcoran in the 1920s by Senator Clark, whose family also paid for building’s construction.

The Trustees further asserted that time was of the essence; without the approval by Judge Okun of the cy près petition before the start of the College’s fall semester and the petition’s consequent resolution of the Corcoran’s financial plight (i.e., it would no longer exist as an independent entity), the Middle States Association of Colleges and Schools would not renew the Corcoran’s accreditation, adversely affecting the status of its students’ federal aid since there would be no assumption by GW of the Corcoran’s financial plight and thus no folding of the newly named Corcoran’s School of Art & Design’s accreditation into GW’s overall accreditation mantle.

Further, since the Corcoran would also no longer exist as a museum, there would be no censure of the Corcoran for using $35 million from the proceeds of its recent sale of rare carpets from the Clark bequest for purposes other than that of refreshing the its art holdings.

The Multi-Week Hearings

The District’s office of the Attorney General joined these proceedings in support of the Trustees’ cy près petition while a group of students, faculty, staff, and donors organized a non-profit organization called “Save the Corcoran,” (STC), and engaged the law firm of Gibson, Dunn & Crutcher LLP to represent it pro bono before the court and file a complaint and plea to intervene in opposition to the Trustees cy près petition.

In his filing to the court asking for intervenor status, STC’s lead attorney Andrew Tulumello excoriated the Trustees, asserting that “the Petitioners request the total destruction of the Corcoran, and they seek to dissolve the Corcoran on terms that are mystifying to students, faculty, donors, the arts community. Rather than chart a course that remains even remotely faithful to the terms of the Trust, the supposed ‘next best’ remedy proposed by Petitioners is no ‘remedy’ at all. It is complete surrender and abdication. The Corcoran will give its highly esteemed school and Flagg Building to George Washington University (‘GW’) and receive nothing in return. The Corcoran will provide the very best of its collection of American art to the National Gallery of Art (‘NGA’) and receive nothing in return. And the Corcoran will contribute as much as $50 million in cash to effectuate the GW and NGA takeover — for nothing in return. The trustees of the Corcoran ask the Court to commit the gravest form of fiduciary breach: to destroy the very institution they are charged with protecting. Petitioners do not come to this Court to save the institution; they come to eradicate it.”

STC, an organization made up of current and former students, faculty, staff, and donors, was seeking to intervene to protect the special interests of its members and prevent the Corcoran from being dismantled without all voices being heard. To this end, STC filed a petition to intervene in opposition to the cy près petition and to assist the Court in developing a careful and responsible alternative plan that comports with the trust documents and DC law.

After seven months of dealings behind closed doors, the Trustees released the final details of the deals only in late July, leaving little more than three weeks for the public to review those documents before the Court would hear the Trustees’ motion for cy près relief. “No serious and fair-minded Board,” asserted the STC opponents of the Trustees’ petition, “should want the fate of an historic 150 year-old iconic institution decided in such a manner. The Trustees evidently have sought to create an environment in which this Court, hearing no adversarial presentation, receiving no new evidence, and having no evidentiary hearing, would accept the deal with GW and the National Gallery as a fait accompli.”

On the contrary, argued the Trustees’ lead attorney Charles Patrizia of Paul Hastings LLP, also appearing pro bono on behalf of the Corcoran, in a filing to the Court, “it is impracticable for the operations of the Corcoran to continue in their current form, and the agreements with the National Gallery of Art and George Washington University present the best method of continuing to implement the charitable intent at the formation of the Corcoran.” Patrizia dismissed out of hand the arguments in the pleadings of the prospective intervenors.

To the surprise of old hands in legal matters of this nature, after strenuous arguing by the parties and numerous legal and factual questions from Judge Okun regarding the proposed deal between the Corcoran and GW, the Court granted intervenor status to nine of the STC petitioners — seven current students, one current faculty member, and one current staff member. Judge Okun denied intervenor status to Corcoran alumni and past faculty and staff as well as that of STC for organizational or associational status.

Two additional issues remained to be resolved prior to the beginning of the actual evidentiary hearing: namely, access by the intervenors to internal Corcoran documents, and the number and naming of witnesses each party wished to call, with controversy over expert witness on the part of the intervenors immediately raised by the trustees’ attorney.

Okun granted the request for document access and struck a middle ground in terms of the magnitude, logistics, and copying of documents, allowing audited financial statements for seven rather than 12 years; board minute books, including consultant reports, for 2010-2013; a review in the Judge’s chambers of deal documents for confidentiality of an estimated 50 pages, and draft confidentiality statements from the parties; emails to the Judge’s chambers of “John Does” identity issues; and a limit to all parties of 10 interrogatories.

Legal questions intruded from time to time — especially the question of standard of proof being that of “clear and convincing” and whether acts of management mismanagement had to be shown as “deliberate” to be grounds for cy près denial. Judge Okun said they did without saying whether or not other grounds existed such as those of asserted “impracticability or impossibility” of the continuance of a trust. Standard rules of evidence were stipulated but being a case in equity, Judge Okun could allow hearsay should he deem it reliable and useful in the case.

The intervenors estimated they would call “a half dozen, more or less” witnesses, while the Trustees stated they would call three, and DC Assistant Attorney General Catherine Jackson would call none. And when the parties reassembled one week later before Judge Okun for the start of the evidentiary hearing on that following Monday, July 28th, the intervenors list of witnesses had grown to 12 while replacement of the “John Doe” intervenors with named faculty and staff was announced; the Trustees’ witnesses remained at three; and that of the Assistant Attorney General was still zero. Additionally, the Trustees’ attorneys filed a motion of objection to the three expert witnesses being proposed by the intervenors. And, Corcoran Chief Operating Officer Lauren Stack appeared on both the trustees and intervenors’ lists with STC co-organizer Jayme Mclellan electing to observe the full proceedings in the courtroom rather than be sequestered as a witness, thus reducing by two the intervenors number of witnesses.

The Corcoran trustees first witness was Chief Operating Officer COO Lauren Stack, recruited by retired banker Fred Bollerer, himself a recent COO at the Corcoran, with whom Stack served on several non-profit corporate boards. In addition to being a personal friend of Bollerer, Stack is a next door neighbor and friend of Corcoran Trustee Chairman Harry Hopper and his wife Marie. Like Bollerer, Stack has no background with art museums or colleges or universities.

After friendly questions from the trustees attorney, the intervenors’ attorney bore down in cross examination on Stack’s lack of any experience in fund-raising and development for non-profits, and the absence in her education or previous employment with financial management, even though both the chief financial officer and the director of development reported to the COO.

A major issue became the fact that financial statements prepared on her watch showed only two of the previous 13 years with surpluses, the other 11 with deficits, whereas if investment income were included in the revenues versus expenses analysis — which is said to be customary for non-profits — six of those years would have had surpluses rather than the assertion of there being only two years with surpluses during that time frame. Therefore, the shortfall for the seven deficit years would have been narrowed and the average deficit over the 13 years would have been less.

Repeated questions were asked regarding such receivables as the $11.2 settlement to the Corcoran from the Huguette Clark estate having been excluded from the financial analysis presented to the trustees. By the time the dust settled around an argument on the amount of cash on hand, it seemed to be $54.2 million, not counting the $11.2 Huguette Clark estate settlement, assertedly excluded, said the trustees’ attorney, because the Corcoran did not know the date on which it would receive the money.

The following morning saw a bravura performance by a confident and articulate witness — the president of George Washington University, Dr. Steven Knapp — who engaged the court with discourses on the history of William W. Corcoran and his service on the GW Board of Trustees as well as the roles and relationships of schools to colleges and colleges to the University proper at GW, further offering as an illustrative example that of Baltimore’s Peabody Institute being a successful example of an affiliated college remaining a thriving, independently known school after becoming a division of Johns Hopkins University where Knapp had previously served as Provost.

The value of the Fillmore School building in Georgetown was thrown into the mix of Corcoran assets that would be transferred to in cross examination by the intervenors’ attorney, whose tally began with the $116 million assessed value of the Flagg Building, the $7.3 million ($10 million value of Fillmore minus a $2.7 million mortgage), the no less than $35 million in cash for immediate renovation of the Flagg, and education endowments of an estimated $10 million (Knapp’s recollection was $8 million) — all this in addition to the value of the Corcoran College name and brand and that of the curriculum, other academic materials, and the Corcoran-developed on-line courses.

A confused discussion of gallery space in a GW-owned Flagg building and its Clark wing addition ensued. And Knapp recounting of the two colleges Corcoran established at GW brought the question and reminder from the intervenors’ attorney that William W. Corcoran had established the Corcoran Gallery of Art in 1869 at the same time he was serving (1869-1872) as president of what was then known as Columbian College. (It was not until 1904 that it took on the name of George Washington University.)

An extraordinary amount of information regarding the Corcoran’s attempts at fund-raising to establish a sustainable and stable operating model was provided by Corcoran Board of Trustees Chair Harry Hopper, this in a decidedly quiet, articulate, and low-key manner. Called as a hostile witness by the intervenors’ counsel, he was subjected to persistent and troublesome questions regarding the Corcoran’s small Board of Trustees, its continuing track record of failed capital fund-raising drives, the lack of identification and closing on major individual gifts, and the repeated hiring of expensive consultants who seemed, in the eyes of the intervenors, to offer the same unheeded advice.

Hiring top managers with no experience in arts, education and art museum and non-profit college development drives also provided the context for much of his questioning. Hopper was less successful in presenting a coherent picture of the fundamental reasons for the trustees admitted failing in seeking to secure financial stability.

The most entertaining testimony of these eight days of proceedings was provided by the colorful and controversial Washington philanthropist Wayne Reynolds, showcased by the STC attorneys as perhaps the “white knight” to the rescue. Some of Reynolds’ testimony seemed more in the tradition of tales told out of school but his account of the successful $50 million, turn-around, capital fund-raising he led as chair of the Ford’s Theater Board of Trustees is irrefutable. Its success resulted in the renovation and restoration of the theater and its adjacent small museum, and the establishment of the Ford Theater Center for Education and Leadership.

If a “white knight” arises like a phoenix out of the ashes of a failed cy près petition in this matter, it could probably be the charismatic president of the University of Maryland, Dr. Wallace Loh, who testified as a witness called by the intervenors after receiving a subpoena to appear. Dr. Loh’s testimony was literally captivating. He spoke as a spurned suitor left at the altar following what he considered a successful courtship by the Corcoran, culminating in a personal presentation of a best and final offer delivered to a meeting of the Corcoran Board of Trustees — after which, he testified, the board members applauded him and hugged him; it was a “love fest, and I hug back,” he reported.

Loh further characterized his vision of the proposed partnership as one where the two parties would retaining their separate identity, award their own degrees, share their strengths and expertise, and provide each other with tangible, identifiable benefits.

Maryland would gain a relationship it greatly desired, Loh stated, filling a void in its panoply of great programs and the Corcoran would gain a powerful force in attaining financial stability and benefiting from the power of scale provided by the University. The two parties would be independent of each other but joined together like in a marriage.

Loh’s account of the sudden failure of what he thought was a successful conclusion to months of interaction in a complex set of negotiations differs dramatically from that of Harry Hopper. Its reversal and the sudden and unexpected announcement of the deal’s dissolution the announcement of the deal between the Corcoran and GW and the NGA is one of the many major mysteries of this entire saga. The reconciliation of these two differing accounts will be one of Judge Okun’s most important tasks in reaching a verdict on the Corcoran’s cy près petition.

The intervenors’ three expert witnesses provided a series of fascinating compressed tutorials in the interstices of art museum, non-profit cultural institution, and corporate development and financial planning for sustainable operation, as well as the primary factors involved in successful fund-raising in the context of a professional individual donor development program. This latter issue was reinforced on the last day of the evidentiary hearing with testimony by Ann Smith, formerly of the Corcoran’s Development Office and previously for eight years in the development office of the Art Institute of Chicago, one of the great art museums in America and, like the Corcoran, possessing a well-known art school.

Smith spoke of the Corcoran’s dysfunctional development office and its lack of professional individual and major gift programs. During her tenure the Art Institute raised $400 million in a successful capital fund drive for the Institute’s new Renzo Piano wing for contemporary art with the leadership of a board of 100 trustees. The final witness, Caroline Lacey, a graduate student in New Media / Photojournalism, gave eloquent testimony on the reasons she chose the Corcoran for a professional degree program rather than a large university like GW.

Final arguments were presented to the court in summary presentations by the three parties to the cy près controversy on Wednesday, August 6th, followed by questions from Judge Okun. Among additional issues raised by the Judge was the question whether if the cy près petition is denied, would a new cy près petition be required for the Corcoran to enter into a partnership with the University of Maryland as outlined during the course of the hearing. (Dr. Loh responded enthusiastically in the affirmative to the question of whether he would again pursue a “marriage” between the university and the Corcoran as independent partners should the issue be reopened). The Judge also asked about the amount of deference and its weight, if any, that should be shown to the trustees; the definition of impracticable in the context of cy près; and, given the expedited nature of this case, will the losing party plan to offer a motion for a stay while planning an appeal, or will the losing party simply appeal.

Judge Okun then retired to his chambers to make his decision and issue an order – prior to August 20th, mindful of the case’s expedited schedule.