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Corcoran’s Takeover by National Gallery & GWU Now Complete; DC Judge’s Ruling in Favor Analyzed

Accompanying images can be viewed in the September 2014 issue PDF

By Anthony L. Harvey

In a cold and dispassionate four-page legal ruling and an articulate but tortured 48-page memorandum order, Associate Judge Robert Okun, a recent appointee to the DC Superior Court, sounded the death knell on August 18, 2014 to the 145-year-old Corcoran Gallery of Art by granting the motion and petition of the Corcoran Trustees — joined in support by the DC Attorney General — to dissolve the Corcoran and distribute its assets to the National Gallery of Art and George Washington University in the precise manner requested by the Trustees and approved by the DC Attorney General.

Many observers were startled by the court’s blanket adoption of the petitioners’ extreme requests — serving to dissolve the Corcoran Gallery of Art and its independent College of Art & Design. This action followed an equally startling earlier decision of Judge Okun’s, when he announced to a crowded courtroom on July 21, 2014, a decision that granted intervenor status to a partial set of persons from the local citizen group called “Save the Corcoran,” who had petitioned for such status in opposition to the Trustees’ petition for the Corcoran’s dissolution. The decision granting even partial intervenor status was not expected by Washington legal insiders, knowledgeable power brokers, and many in the art world and art education circles.

And during the course of the entire trial, Judge Okun further impressed courtroom observers by being flexible — and appearing to be fair — in his many rulings, especially throughout the eight full days of evidentiary hearings occurring between July 28th and August 6th, this all taking place in an expedited, fast-track process that the judge had implemented in the interests, and at the request of, the Trustees who asserted concerns about start of the school year questions regarding the financial stability of the Corcoran College of Art & Design, an integral part of the Corcoran Gallery of Art.

Thus, a more nuanced decision had been expected by many of the trial observers, most of whom were well versed in both the issues surrounding the Trustees decisions and the particulars and contents of much of the filings by the parties to this special judicial proceeding, known as cy près, conducted by a judge who has been charged by the court with approving or rejecting changes being proposed to a deed of trust which had previously established a charitable trust. A cy pres trial seeks to determine if the remedy being sought for the condition being alleged concerning the trust in question is the remedy most likely to comport with the original wishes of the creator of the trust.

The extraordinary nature of this evidentiary hearing and the extreme remedies being proposed prompted this expectation of a nuanced decision from Judge Okun, especially given the strong testimony from the presidents of George Washington University and the University of Maryland, Steven Knapp and Wallace Loh, respectively; the fascinating revelations from witness/philanthropist Wayne Reynolds, best known for leading a highly successful, five-year, $50 million turn-around fund raising campaign for Ford’s Theater; and the strong and painful testimony of the chairman of the Corcoran Trustees, financier Harry Hopper, called as a witness not by the trustees’ powerfully articulate attorney Charles Patrizia of Paul Hastings LLP but by the astonishingly well prepared attorney for the intervenors, Andrew Tulumello of Gibson Dunn & Crutcher LLP.

Judge Okun came to his decision by first, in his own words, narrowing the issues before the court, thus avoiding the questions of competing visions or, on the part of the Trustees, no clearly articulated vision at all for the Corcoran, and the many allegations of managerial incompetence, financial mismanagement, the staffing of the upper reaches of the Corcoran bureaucracy with unqualified friends and neighbors — the immediate previous president and the current chief operating officer, for example, and the failure to fill or expand a robust board.

“Rather,” Judge Okun stated, “the issues before the Court are narrower and can be summed up as follows: 1) have the Trustees of the Corcoran Gallery of Art established that it is impracticable to carry out the Deed of Trust that created the Corcoran given the Corcoran’s financial condition; and 2) if so, is the plan proposed by the Trustees as near as possible to the intent of William Wilson Corcoran when he established the Trust.”

Judge Okun answered both of his narrow questions in the affirmative for essentially equally narrow legal reasons set forth in his 48-page opinion, signaling in his phrasing of the two issues before the court that “impracticability” and not impossibility would be the legal standard used by the court and continuing throughout his order in ruling in favor of looser legal standards proposed by the Trustees — preponderance of evidence rather than clear and convincing evidence, for example.

“The parties interest in the disposition of the Corcoran,” Judge Okun opined, “do not equal a person’s liberty interest in not being civilly committed, a parent’s fundamental interest in not having his or her parental rights terminated, or a child’s life-or-death interest in a do-not-resuscitate order, which are the situations in which the clear and convincing evidence standard has been applied in civil cases.” Judge Okun ignored the “personhood” granted corporations by the U.S. Supreme Court, now complete with Bill of Rights protection which, in this life or death case, one that vitally affects the continued existence of the Corcoran, would seem to cry out for the requirement of a clear and convincing standard of evidence.

When referencing the long-time association of W.W. Corcoran with George Washington University, Judge Okun failed to include the intervenors argument regarding the fact that W.W. Corcoran’s establishment of the Deed of Trust for the Corcoran Gallery of Art as a separate and independent institution occurred while he was President of the governing board of what was then Columbian College (since 1904 known as the George Washington University), and that he continued to serve on that board at the same time he provided for the separate and independent Corcoran Gallery of Art, including a gift of over $2,000 to aid in the establishment of a College of Design in connection with the Gallery and subsequently leaving a bequest of $100,000 for the College of Art in his final will and testament. Simultaneously, Corcoran was gifting a building to what was then Columbian University for a school of medicine and no doubt assisting in the funding of what became Corcoran Hall — keeping the university and the Corcoran Gallery of Art as very separate beneficiaries of his philanthropy.

Judge Okun also adopted a standard requiring the test of fitness for trustees to be a matter of such person committing a deliberate act intended to harm a non- profit trust by precluding its ability to perform its creator’s mission and purpose –- as, for example, making financial decisions deliberately intended to harm such a trust’s financial viability thereby serving to render that person unfit to serve rather than, for example, that of a pattern of repeated decisions that created financial misfortune where the deliberate nature of such an action could not be shown.

As for as the deference — or degree of deference — that the Court should grant decisions or actions of the Trustees, Judge Okun ruled that he need not address that question given his ruling that the Trustees had demonstrated the impracticability of carrying out the Corcoran Gallery of Art deed of trust and that their proposed plan was as “near as possible to the intent of William Wilson Corcoran when he established the trust.”

Further, with respect to the question of the Corcoran’s present financial state, Judge Okun simply took the side of the Trustees, asserting that its financials did show a pattern of financial losses over 11 of the past 13 years under review, and that such losses rose to a level of unsustainability. The intervenors had contrarily argued that the Corcoran’s financial statements were in error, especially because those did not include income from investments or accounts receivable. Were this income included, four of the 11 deficit years would become surplus years and the gap between positive and negative would be significantly narrowed in the remaining seven years.

In only two of the most recent years under review were such deficits, as presented by the Corcoran alarming — one of $7 million and the other being $9 million. Yet the trustees continued to insist that deficits were running at a rolling $10 million a year –- seemingly ignoring the consequence of not including such receivables as the Corcoran’s receipt of $11.2 million from the Huguette Clark estate settlement and the $38 million from the de-accessioning and sale of the Persian carpets from the Clark bequest. These alone would further, and dramatically, brighten the Corcoran’s depiction of its financial condition.

When challenged on the funds received from the sale of the carpets, the Trustees’ response was disingenuous at best. To use those funds for other than the collections — purchasing new works or restoring objects in the collection, for example — would cause the Corcoran to lose its museum accreditation, the Trustees asserted — and the Judge agreed. And yet, ironically, the Trustees’ proposal to give the proceeds from the carpet auction to George Washington University for use in renovation and restoration of the Flagg Building went unchallenged by Judge Okun.

But in the end, the closer Judge Okun got to the conclusions of his 48-page memorandum order, especially where he began to express specific doubts about whether William Wilson Corcoran’s intent in the deed of trust establishing the Corcoran was being followed, he seemed to backpedal on the answers to his own preliminary questions that he had posed in the first two pages of his order.

After airily dismissing the alternatives offered or asserted by University of Maryland (UMD) President Wallace Loh or Washington philanthropist Wayne Reynolds and the Save the Corcoran intervenors, Judge Okun conceded that “the Court is aware that the George Washington/National Gallery of Art proposal is inconsistent with Mr. Corcoran’s intent in one important respect — unlike the UMD proposal from February 2014, the GW/NGA proposal effectively eliminates the Corcoran as an independent institution, leaving behind only an untethered Board of Trustees to advise GW and NGA on future plans for the College and Gallery.” Judge Okun continued this line of thought in an immediate footnote, where he added that “the GW/NGA proposal also may be inconsistent with Mr. Corcoran’s that it authorizes the Corcoran, in consultation with NGA, to de-accession some of the Corcoran collection and transfer it to other institutions.”

In concluding his memorandum order, and issuing his ruling, Judge Okun did provide some gallows humor to this fascinating and tragic event by stipulating that “the Trustees, following the closing of the [said] agreements shall hold and retain the existing federal charter, and shall continue to operate as a non-profit entity, dedicated to ‘encouraging American genius,’ as set forth in the Corcoran Deed of Trust.”

Washingtonians now await the actions of the recipients of these extraordinary gifts in the Judge’s order, which outlined and specified the distribution of the assets of the Corcoran to GW and the NGA. GW, for example, gets the magnificent historic landmarked Flagg Building, the satellite former Fillmore School building in Georgetown and “other real property”; the Corcoran College of Art & Design and its assets, which will now become a school in GW’s Columbian College of Arts and Science; $35 to $45 million to renovate the Flagg Building’s infrastructure; $4 million in temporarily restricted educational endowments; and art attached to the Flagg structure — for example, the Salon Doré, the Canova Lions that flank the main entrance, the stained glass windows from Soissons Cathedral, and the ornately carved, oversize French granite mantel piece — stipulated as the Corcoran Gallery of Art “permanent works.”

All other works of art — numbering an estimated 17,000 18,000 paintings, sculptures, watercolors, prints and drawings, photographs and new media, and miscellaneous other art works — together with $12 million in permanently restricted endowment funds for the conservation of this art, will go to the National Gallery of Art. Works not selected by NGA for its collection will be de-accessioned and distributed to other institutions in Washington, DC, or, with the approval of the DC Attorney General, outside the District.