Museum Files Suit to Seize Proceeds of Wallis Art Sale

The Los Angeles County Museum of Art filed suit Wednesday to seize proceeds of an auction sale of eight Impressionist paintings once owned by film producer Hal B. Wallis, alleging that the artworks, which were on permanent loan to the museum until early this year, were fraudulently taken back by a foundation headed by Wallis’ son.

The action, filed in state Supreme Court in New York City, names as defendants the Wallis Foundation; its five trustees, including Wallis’ son Brent, and Christie’s auction house, which sold the paintings for $39.6 million on May 10.

The county museum sought a temporary restraining order blocking transfer by Christie’s of the sale proceeds to the foundation, and a hearing was scheduled for today. An attorney for Christie’s said it would place in escrow all payments by buyers of the artwork pending resolution of the litigation.

The museum charged that, two weeks before he died in October, 1986, the 88-year-old Wallis signed formal instructions specifically ordering that the paintings be permanently loaned either to the Los Angeles County Museum of Art or another “publicly owned and operated museum” that is “reasonably comparable.” The foundation deliberately kept this secret, the suit alleges.

Among the paintings auctioned last week were two by Claude Monet, “Le Parlement, Coucher de Soleil,” which brought $14.3 million, and “Asters,” which sold for $9.35 million. Also included was Edgar Degas’ “Sur la Scene,” which brought $6.6 million, and a river view by Camille Pissarro, which went for $2.31 million.

The museum had long sought to retain the paintings to augment gaps in its holdings of 19th Century paintings. The prices they fetched came amid a series of astonishing New York auctions reflecting runaway inflation in the price of art works.

In court papers, the museum demands money damages including the entire proceeds of the sale, the 10% commission received by Christie’s as the selling agent and a sum equaling the amount the artwork will appreciate between the date of the auction and the eventual conclusion of the litigation. Attorneys for the museum said that sum could eventually reach $100 million.

Bill Bird, an attorney representing the Wallis Foundation, said the organization had not seen the lawsuit and could not respond in detail to the allegations. However, Bird contended that “the museum’s action is totally without merit. We’re extremely disappointed that they would file a legal action at this stage.”

Separately, The Times obtained a copy of a private Internal Revenue Service ruling, dated in March, 1988, in which the Wallis Foundation was granted favored tax treatment because its most valuable assets were tied up on permanent loan to the museum. In seeking the ruling, the foundation argued that Wallis’ written instructions bound it to retain the valuable art assets on permanent loan to the museum--a position that conflicts with its later decision to sell the paintings.

Daniel N. Belin, president of the county museum’s Board of Trustees, asserted in an interview that the action by the foundation forcing removal of the paintings from public display violated the “expressed wish” of Wallis that “the pictures be on display at the museum. The trustees of the Wallis Foundation subverted this trust.”

The museum charged that the foundation “intentionally (failed) to disclose” existence of the seven-page “letter of instructions,” signed by Wallis and dated Sept. 23, 1986, when, in early January, the foundation abruptly informed the museum that it was taking back the paintings so they could be sold to raise funds for its charitable grant program.

Withdrawal of the Wallis collection was the first of two jarring shocks to the museum in early January. Less than two weeks later, industrialist Armand Hammer announced that he was breaking a 17-year-old promise to donate his $250-million art collection to the county facility. Hammer, instead, said he would construct his own museum in Westwood.

Wallis also instructed the foundation to donate outright to the museum Paul Gauguin’s “The Field of Derout-Lollichon.” The painting is the only piece of the Wallis collection still in the museum’s hands. In a futile letter protesting withdrawal of the Wallis collection in early January, museum director Earl A. Powell observed that the Wallis holdings “are stars in the context of our very weak presentation of 19th-Century French art.”

The suit represented the latest chapter in the unusual story of the Wallis art collection. Wallis, who gained fame as the producer of such motion picture classics as “Casablanca,” “Yankee Doodle Dandy,” “The Maltese Falcon” and “Little Caesar,” was one of the most prominent private art collectors in Southern California.

Long active in local art affairs, Wallis was a member of the Los Angeles County Art Museum’s board for 20 years. The pieces conveyed to the county museum on permanent loan were first put on public view in January, 1987.

After he signed the letter of instructions specifying disposition of some of his art holdings and such film memorabilia as his personal print of the movie “Casablanca,” the Wallis Foundation, in December, 1986, turned over a total of 13 paintings, including the eight prominent Impressionist works, describing them as being loaned on a “permanent basis.”

Several conditions were attached, ranging from requirements for adequate insurance for the paintings, which had a total appraised value at the time of $5.1 million, to stipulations that they be conspicuously labeled as being on “permanent loan” from the Wallis collection.

The 1988 Internal Revenue Service private ruling is an attachment to the 1988 report of the foundation to the California attorney general’s office. The document, signed in March, 1988, by Milton Cerny, chief of the IRS’s exempt organizations branch, held that, since the paintings in question were tied up on permanent loan to the Los Angeles County Art Museum the foundation could deduct them from its total asset value.

The effect of the ruling was to eliminate virtually the entire legal obligation of the foundation to make money grants for the fiscal year that ended June 30, 1988.

California state records show that, in fiscal 1987-88, the foundation’s net worth increased from $5.7 million to more than $21 million--largely as a result of transfer of securities and real estate from Wallis’ estate to the foundation. However, because of the IRS finding that the loan of artwork offset a large portion of the asset total, the organization complied with IRS requirements for distribution of money by nonprofit foundations by giving away just $109,000.

Bird said the foundation’s grant outlays have increased this year to several hundred thousand dollars. IRS rules require that tax-free foundations give away the equivalent of 5% of their net worth each year or be taxed for as much as 100% of the funds they improperly retain.

In early January, Jeff Glassman, a Los Angeles attorney who is the Wallis Foundation’s secretary, informed Powell that the paintings were being repossessed so they could be sold to take advantage of rapid escalation in art prices and to provide a cash windfall from which the foundation would finance a variety of charitable programs. These ranged from medical research to environmental, conservation and homeless programs.

In disclosing the removal of the Wallis collection, Powell said at the time that the museum had concluded it had no basis to contest the foundation’s decision.

The situation changed suddenly, however, when Wildenstein & Co. Inc., a respected New York gallery, sued the Wallis Foundation in early May, alleging that it had a long-standing agreement under which Wildenstein would act as sales agent for any items from the collection that were to be disposed of.

During an unsuccessful attempt to block the May 10 auction, Wildenstein lawyers discovered the existence of the 1986 “letter of instructions” and were told of the existence of the related IRS ruling, according to Jeremy Epstein, a partner in the New York law firm of Shearman & Sterling.

The gallery’s lawyers notified the Los Angeles museum of the discovery and the museum attempted unsuccessfully, late in the afternoon of May 10, to persuade Christie’s to withdraw the Wallis items from the auction scheduled that evening.