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“A Picture Imperfect: The Rights of Art Consignor-Collectors When Their Art Dealer Files for Bankruptcy,” Duke Law Journal

Somerhill Gallery Monthly Operating Report for June, U.S. Bankruptcy Court

Somerhill Gallery creditor list, U.S. Bankruptcy Court

Landlord’s Motion Requiring Debtor to Vacate Premises, U.S. Bankruptcy Court

Joseph D. Rowand, KIA purchase, U.S. Bankruptcy Court

Joseph D. Rowand, Statement of Financial Affairs, U.S. Bankruptcy Court

Joseph D. Rowand, personal financials, U.S. Bankruptcy Court

Disclosure: The Indy‘s Durham office is in the same building as Somerhill Gallery. The Indy is also a creditor in the gallery’s bankruptcy proceedings for advertising that has not been paid.

Ed Kellogg’s paintings of the eastern Tennessee landscape have been featured in collections of major corporations ranging from IBM to Euro Disney to the Opryland Hotel.

And his work has been shown at Somerhill Gallery in Durham, which, according to federal court records, owes him $22,000 in commissions for paintings it sold but for which it never paid Kellogg.

Kellogg is one of at least a dozen artists whom Somerhill Gallery owes money for consigned works. The gallery, which describes itself as one of the most prominent galleries in the Southeast, recently declared Chapter 7 bankruptcy after filing for Chapter 11 earlier this year.

According to bankruptcy documents, 13 of the top 20 unsecured creditors are artists, who are owed in amounts ranging from $9,500 to $45,000. In total, Somerhill owes at least $277,000 to artists, $200,000 to its landlord, Scientific Properties, $200,000 to the estate of the late philanthropist Rolf Rosenthal, who loaned the gallery money, plus hundreds of thousands more to banks and financial lenders.

Somerhill racked up this debt while gallery president Joe Rowand, according to court records, paid himself a $15,000 monthly salary, plus $3,300 in health insurance benefits. He also purchased a new $25,000 KIA Soreno after he declared personal and company bankruptcy in May, according to court records.

Including Social Security and rental income, Rowand earns more than $18,000 per month. (Other court records indicate it is $13,000.) His average living expenses, including a $5,300 monthly mortgage payment, total about $11,000.

Rowand, who has headed Somerhill for nearly 40 years, did not respond to repeated requests for comment.

The economic downturn undoubtedly contributed to Somerhill’s financial unraveling. Nationwide, hundreds of art galleries have closed or laid off employees. In general, corporations and institutions are purchasing or commissioning fewer works, and private collectors are buying more cautiously as well.

However, the gallery cannot attribute all its financial woes to the economic downturn. In some cases, the missed payments happened well before the bust and well before Somerhill moved from the Eastgate Shopping Center in Chapel Hill to the Venable Building in Durham.

Ginny Crouch Stanford, a painter from Sebastopol, Calif., said she learned only two weeks ago that in April 2006 “Joe began selling my work and not paying me.” Stanford said she is owed for a total of 12 paintings, including five from 2006 and two as recently as this year.

Stanford, who is owed more than $13,000, said she occasionally checked in with the gallery by e-mail and phone, but “I was given the impression that nothing was selling. I thought I was losing my touch.” As a result, she shifted her focus from landscapes and abstract works to portraits.

Stanford had been showing at Somerhill since the late 1980s, although she was not under an exclusive contract with the gallery. She said she had not encountered any major problems until she requested the gallery return a set of paintings that had sold. When the set arrived, she noticed one was missing and contacted Somerhill. Only then did she get a check, she said, “but I didn’t get an explanation. It made me uneasy.”

Kellogg, who lives in Chattanooga, Tenn., said Somerhill sold some of his paintings but did not notify him of the sales. (He discovered the error while doing his own record keeping.) Kellogg said Somerhill owes him commission on 10 paintingsincluding some that were sold as long ago as 2002. He told the Indy that Somerhill sold three of his works to the Kenan Institute for Ethics at Duke University. An institute spokesperson confirmed it purchased three paintings from Somerhill last February and paid the gallery in full.

Some of the artists contacted for this story, although dismayed by the sums they are owed, were reluctant to criticize Rowand. Henry Link of Greensboro, who is owed $15,275, called Rowand “a good dealer.”

“He’s sold a good deal of work for me,” Link went on. “I’m sympathetic. I think things got out of control.”

Sylvia Roth has worked with Rowand for 10 years. She and painter John Beerman run Hudson River Editions in Nyack, N.Y. Somerhill owes Hudson nearly $19,000 and Beerman $40,750.

“I can completely understand the situation,” Roth said. “When times were good, Joe was always able to pay his bills and he always paid his artists.”

As for his ample monthly salary, which is equivalent to $180,000 a year, Roth said, “that’s not a tremendous amount. He had to pay all the things that a person needs to function. I don’t think it’s fair to complain about him taking a salary. It’s not Joe. It’s the rest of the world. I trust he’ll get back on his feet and pay me.”

Rowand is well-known in the East Coast art world and in well-heeled social circles. He has served on several advisory boards, including those for the University of North Carolina School of the Arts, Sarah P. Duke Gardens and the Conservation Trust of North Carolina, which has hosted fundraisers at Rowand’s 22.5-acre estate. The property, located between Hillsborough and Chapel Hill, includes a 4,500-square-foot mansion, which is decorated with fine art, and the grounds with a saltwater swimming pool and separate guest quarters. The property is for sale for $2.5 million, according to several realty websites.

Rowand’s opulent lifestyle is detailed in his bankruptcy records. He lists $75,000 worth of art and other collectibles, a Corvette worth $18,000

It is unclear who will be paid whenor ifand what will become of the gallery and the works already on exhibit there if the assets are sold to pay the creditors.

It’s also uncertain whether he plans to use proceeds from a home sale to help his ailing business. However, the artists who are owed money may have to wait until other higher-priority debts are paid, including any taxes, administrative costs related to the bankruptcy and money owed to secured creditors.

If Somerhill sells the consigned artwork currently on exhibit in the gallery, such as several Stanford paintings that remain there, those proceeds may not be paid to the artists but instead go into the bankruptcy estate. Duke University law professor Deborah DeMott said unsecured creditors, other artists, the banks, the landlord may have a right to that money.

An article by Hilary Jay, one of DeMott’s students, in the Duke Law Journal concluded that the law should be more protective of the artists.

“In failures of large commercial galleries, it’s been a complicated process to sort out who owned what,” DeMott said.

In the meantime, it appears Rowand plans to move the business, which employs six people, from its 9,663-square-foot space, back to Chapel Hill, where it operated until 2008. According to court documents, Somerhill has asked to remain in the Venable Building until its new premises are ready, although, judging from court documents, Scientific Properties, already out $200,000, is not keen on that idea.

The new space would be at Greenbridge, a mixed-use development at Rosemary and Graham streets. Greenbridge developer Tim Toben confirmed that Rowand approached him about relocating there and they are discussing a possible deal. Toben said he is aware of the Chapter 7 filing but nonetheless “would be happy to have Somerhill.”

Someone else besides Rowand could soon operate the business. A hearing scheduled for Sept. 7 in U.S. bankruptcy court, which is just steps from the gallery’s front door, will determine if Somerhill’s trustee, Sara Conti, will be allowed operate the business “to preserve the value of its assets and to mitigate any losses associated with the cessation of the business.”

Conti did not return calls seeking comment.

Stanford said she has been reflecting on what has happened between her and Somerhill. “This should be a cautionary tale for other artists. In this case, I made it easy for Joe to do this. I could have been more aggressive in looking out for my self-interest, but I let a personal relationship override it. If your dealer is reluctant to provide information, you need to run. You need to keep your dealer honest.”