Last month, a New York court dismissed a lawsuit by the former president of the board of directors of the Helen Frankenthaler Foundation, in a case focused on allegations of misconduct and self-dealing by the Foundation’s board members.  The court did not substantively analyze the merits of the plaintiff’s claims, but the case highlights the importance of clear and thoughtful governance procedures and standards for art-related not-for-profit organizations.
 
FACTUAL BACKGROUND
 
Before groundbreaking Abstract Expressionist painter Helen Frankenthaler died in 2011, she set up an eponymous foundation that, among other things, was intended to protect her artistic legacy and her role in art history.  The Foundation became the principal beneficiary of her estate, which included many of her own works of art. 
 
After her death, the Foundation was led by her nephew and a co-executor of her will, businessman Frederick Iseman, who served as president of the board of directors, as well as three other directors: Clifford Ross (another nephew of Helen Frankenthaler and an artist himself), Lise Motherwell (Frankenthaler’s stepdaughter from the period when Helen Frankenthaler was married to artist Robert Motherwell), and Michael Hecht (founder of an accounting firm).
 
About a decade after Frankenthaler’s death, however, relations between the board members began to fracture; according to Iseman, this was because the other three members were interested in winding down HFF completely, while Iseman felt this would gravely harm Frankenthaler’s legacy and the value of her works.  The dissension culminated in two Board meetings in April and May of 2023, which resulted in Iseman’s departure from the Board—he says that he was improperly removed, while the other Board members characterize the situation as one in which Iseman was not reelected.
 
THE LAWSUIT
 
In November 2023, Iseman filed suit in a New York state court, accusing Ross, Motherwell, and Hecht of “looting” HFF by using its assets to advance their own self-interest rather than HFF’s mission.  In particular, Iseman alleges that Ross, who is himself an artist, used his role in HFF to benefit his own artistic career by steering HFF artworks and grants to institutions that would also accept and promote Ross’s own artworks.  He alleges that Motherwell, for her part, used her board position to curate Frankenthaler exhibitions at “local, unprestigious museums,” including one where she serves on the board.  Hecht, Iseman alleges, made sure that Hecht’s own accounting firms profited from HFF work and that the Foundation made donations to unrelated institutions where he sits on the board.  Iseman claims they failed to disclose these conflicts of interest and concealed their self-dealing.  Further, Iseman’s complaint attacks the Foundation’s executive director, Elizabeth Smith, alleging that Smith, too, used her role at HFF to secure donations for other institutions of significance to her. 
 
Iseman’s complaint alleges not only a pattern of self-dealing, but also a scheme by the defendant directors to eventually dissolve the Foundation—whose assets he says are now worth nearly $1 billion—in a scheme that he believes will undermine Frankenthaler’s legacy and devalue her works.  Iseman notes that Ross has his own charitable foundation which “would be a ready recipient” for HFF assets.
 
The complaint urges that under New York law, Iseman’s expulsion from the Board was improper.  Iseman sued in his own right over his termination from the Board, which, in his view, violated the HFF Bylaws and New York law.  He also sued derivatively (that is, on behalf of the Foundation) for breach of fiduciary duty for the harm he says has been done to HFF, and sought other relief, including an accounting, reinstatement to the Board, and removal of the director defendants as directors and officers of HFF.  He also asked the court to enjoin the directors from selling, donating, or otherwise disposing of art from the HFF collection. 
 
THE RULING
 
The Foundation and the Director Defendants moved to dismiss Iseman’s claims, primarily on grounds that he did not have standing to bring them—in other words, that he was not the right kind of plaintiff to assert such claims.  This argument focused on New York’s Non-Profit Corporation Law § 720, which provides that only certain categories of plaintiffs can bring a legal action against directors and officers of non-profits.  Iseman argued that he could bring his claims because he is a director, while the Defendants urge that he is no longer a director and therefore cannot sue under that statute.  The Director Defendants also moved to dismiss Iseman’s improper removal claim.
 
After briefing and oral argument, the Court sided with the Defendants, agreeing that the May 2023 Board meeting had been properly noticed and conducted as an “annual meeting” as required by the Bylaws, so his removal stands.  The Court also observed that the state’s Attorney General “would be the correct party to look into what's going on with the foundation and is everything on the up and up; but, the point is, the statute is clear in terms of no standing.”  (Interestingly, during the proceedings, Iseman sought to involve the New York Attorney General’s office, but the State indicated that it would not be taking action and that it would let the civil lawsuit play out.)  Iseman plans to appeal the ruling to a higher New York court.  And as of this summer, two additional board members have been added to HFF. 
 
This case is noteworthy because the role of artists’ foundations is an important one for the art market.  Foundations often exercise control over an artist’s intellectual property rights, archives, and other valuable assets; they often hold their own collections of the artist’s original works, and thus can decide if, how, and to whom those holdings might be loaned or sold; they are often involved in the creation of catalogues raisonné; and they can provide input and insight for exhibitions, retrospectives, scholarship, and other activities that can shape an artist’s legacy (and with it, the market for the artist’s work).  Thus, the officers and directors of such foundations have great responsibilities—and significant power.  Those powers and responsibilities are governed by law and by an organization’s own bylaws and governing procedures, but it is not always clear how those constraints should apply to issues such as potential conflicts of interest.  Even procedural questions (for example, how to properly notice and conduct meetings and elections) can become contentious.  And when stakeholders have different visions for the direction of an organization, those differences can snowball into litigation and may draw scrutiny by state law enforcement as well.  Artists, foundations, and directors can benefit from proactively seeking legal advice about formation and governance of an organization, to try to prevent disputes like this one.