In Re Rothko,

43 N.Y.2d 305, 372 N.E.2d 291, 401 N.Y.S.2d 449 (1977)

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Nature of the Case

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Facts

Testator's estate consisted primarily of his own artwork. Rothko was an abstract expressionist painter whose works gained him an international reputation of greatness. Rothko died testate on February 25, 1970. His will named three executors, Reis, Stamos, and Levine, and left most of his estate to a charitable foundation. The principal asset value of his estate was 798 paintings of tremendous value. The will was admitted to probate on April 27, 1970 and testamentary letters were issued to the three executors. Within a period of just three weeks and by virtue of two contracts each dated May 21, 1970, the executors dealt with all the paintings. They agreed to sell to MAG, 100 of the paintings for $1,800,000 with $200,000 to be paid on execution and the balance to be paid in twelve installments over twelve years interest-free. The balance of the paintings was consigned to MNY with the consignee to be responsible for costs covering them including storage, restoration, and promotion. MNY was permitted to sell up to 35 paintings per year from each of two different groups, pre-1947 and post-1947, for 12 years at a best price obtainable but not less than the appraised estate value. MNY would get 50% commissions but only 40% on those paintings sold through other dealers. Within weeks after the will was admitted to probate, the executors sold all of Testator's paintings pursuant to two separate contracts. Reis was an officer in one of the corporations with whom the estate had contracted to sell the paintings. Stamos, who was also an artist, was under contract with the same company. The contracts were worth substantially less than the paintings. Testator's daughter (P), who under New York law was entitled to elect against her father's will, filed suit to remove the executors and to enjoin the sale of the paintings. The lower court found that Reis and Stamos both had a conflict of interest with respect to the contracts. It further found that Reis discharged his duties as executor in bad faith; that Stamos did so negligently and in a self-interested manner; and that Levine failed to exercise due care in the discharge of his duties since he was aware of the conflicts of interest and did nothing about them. The court determined that the executors' acts and omissions were substantial enough to justify their removal. With respect to the two companies with whom the executors contracted, the court issued a temporary restraining order, followed by an injunction. Both companies disposed of paintings in violation of the order and injunction. Finally, the court measured damages as the value of the paintings sold as of the time of trial. The Appellate Division affirmed the lower court. On appeal to the Court of Appeals, the court rejected the executors' contention that the lower courts should be reversed because they improperly applied the 'no further inquiry' rule. The executors argued that the rule applies only in cases of self-dealing. In a case such as this, where the executors have a conflict of interest, the court must evaluate the good faith of the executors and the fairness of the transaction. The court notes that not only is there no evidence that the lower courts applied the 'no further inquiry' rule, but also that it is clear that Reis and Stamos did not act in good faith, and that the transaction was not fair.