As COVID-19 spread across the globe, most museums were forced to close their doors to the public to comply with “stay at home” orders and social distancing requirements. Like many other businesses, museums are cutting pay and furloughing workers in an effort to deal with the financial hardships caused by the pandemic. Others have taken more drastic measures, such as the Museum of Contemporary Art in Los Angeles, California, which laid off all of its part-time staffers in March.

One action museums may be contemplating to ease their financial burden is the deaccession of artwork. Deaccession is the industry procedure to remove an object from an institution’s collection and sell it to raise funds.

Ethical Standards for Deaccession

When it comes to industry practice, each museum sets its own policies regarding deaccession and the sale of museum assets. These policies are typically guided by the ethical standards set by two major museum associations: the American Alliance of Museums (AAM) and the Association of Art Museum Directors (AAMD). These guidelines do not create legal obligations or establish mandatory rules for museums to follow, but rather, as a Federal District Court in Ohio noted in 2006, these guidelines are intended to “facilitate the ability of museums to act ethically and legally as stewards” through “serious efforts” on a “case by case basis.”

Historically, both industry groups have taken a firm stance against most deaccessioning activities, with the notable exception of selling artwork for the purpose of making new acquisitions. In 2011, the Delaware Art Museum sold one painting from its collection to tackle a debt. AAMD’s president stated, “The proceeds from the sale or funds from the deaccession can only be used to buy other works of art.” AAMD sanctioned the Delaware Art Museum and called for other museums to discontinue working with the Delaware Art Museum.

Similarly, in 2017, both AAM and AAMD censured the Berkshire Museum in Massachusetts when it used the proceeds from the sale of 40 artworks to carry out museum operations, including a plan to shift the museum’s focus away from art.

These sanctions can last for a few years, as was the case when AAMD sanctioned the National Academy Museum in New York for selling Frederic Edwin Church’s Scene on the Magdalene (1854) and Sanford Robinson Gifford’s Mount Mansfield, Vermont (1859) in order to pay its bills. The sanctions were lifted in 2010.

Given this history of sanctions by both AAMD and AAM, a major policy shift occurred on April 15, 2020, when AAMD came out with a statement announcing it will refrain from censuring or sanctioning any museum if deaccession-related transactions, which occur between April 15, 2020 and April 10, 2022, are to support operating expenses.

However, this policy shift by AAMD does not alter the legal rules governing such transactions. When it comes to deaccession, the law is far from simple or straightforward.

Legal Deaccession in New York

Unlike in Europe, the U.S. Government has very limited authority on cultural issues. Museums are, for the most part, subject to state law, as most of them are organized under state not-for-profit statutes. Furthermore, New York requires museums that were created after 1890, with collections present in the state, to charter as a private education corporation under the New York State Board of Regents. All organizations subject to oversight by the New York State Board of Regents are subject to three areas of New York legal governance: the education law, the not-for-profit corporation law, and regent rules.

First Stop for Deaccession in New York: The Board of Regents

The Board of Regents legally defines deaccession as “removing an object from an institution's collection, or the act of recording/processing a removal from an institution's collection.”

In 2011, the Board of Regents updated its rules regarding deaccession. The New York Codes, Rules and Regulations (NYCRR) state a museum deaccession may occur only:

…in a manner consistent with its mission statement and collections management policy and where one or more of the following criteria have been met:
(i) the item is inconsistent with the mission of the institution as set forth in its mission statement;
(ii) the item has failed to retain its identity;
(iii) the item is redundant;
(iv) the item's preservation and conservation needs are beyond the capacity of the institution to provide;
(v) the item is deaccessioned to accomplish refinement of collections;
(vi) it has been established that the item is inauthentic;
(vii) the institution is repatriating the item or returning the item to its rightful owner;
(viii) the institution is returning the item to the donor, or the donor's heirs or assigns, to fulfill donor restrictions relating to the item which the institution is no longer able to meet;
(ix) the item presents a hazard to people or collection items; and/or
(x) the item has been lost or stolen and has not been recovered.

The funds raised from these transactions are to be restricted in a separate fund and to be used only for the acquisition of collections, or the preservation, conservation, or direct care of collections. In no event shall proceeds derived from the deaccessioning of any property from the collection be used for operating expenses or for any purposes other than the acquisition, preservation, conservation, or direct care of collections.

The Board of Regents rules make clear that proceeds from deaccession may not be used to pay operating expenses. Unlike AAMD’s and AAM’s guidelines and standards, these rules have the force of law. If a museum violates these rules, they risk losing their charter.

Second Stop for Deaccession in New York: The New York State Attorney General

Besides the risk of the New York Board of Regents revoking their charter, the New York State Attorney General has the duty of overseeing not-for-profit organizations as part of their parens patriae authority.

First, New York’s Not-For-Profit Corporation Laws (N-PCL) require not-for-profit corporations that want to sell, exchange, or otherwise dispose of all or substantially all of their assets to submit a verified petition for approval of such transaction either to the New York State Attorney General or to the court on notice to the New York State Attorney General. There is no fixed measure in New York law that defines “substantially all.” The New York State Attorney General approval is required when the transaction involves a large portion of the total assets or when it may affect the ability of the entity to carry out its purposes, regardless of the percentage of the entity’s total assets that are the subject of the transaction. If a museum plans on deaccessioning all or substantially all of their artwork, they will be required to seek approval from the New York State Attorney General.

Second, the New York State Attorney General also has broad authority to oversee the administration of charitable assets under a number of statutory provisions, including the conveyance, assignment, or transfer of the museum’s assets.

Therefore, during these challenging times, museums should be aware of and comply with their state law obligations, and not just rely on guidelines from professional organizations.

By: Mackenzie E. Roach, Esq.
Of Counsel, the Ciric Law Firm, PLLC

This material is for general information purposes only and should not be construed as legal advice or any other advice on any specific facts or circumstances. No one should act or refrain from acting based upon any information herein without seeking professional legal advice. The Ciric Law Firm, PLLC makes no warranties, representations, or claims of any kind concerning the content herein. The Ciric Law Firm, PLLC and the contributing presenters or authors expressly disclaim all liability to any person in respect of the consequences of anything done or not done in reliance upon the use of contents included herein.