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Salander Looks to Sell Townhouse as Suits, Countersuits and Claims Mount

Even as proceedings in the Salander-O’Reilly Galleries bankruptcy filing gradually move forward, the tangled case continues to be marked by contentious legal wrangling and competing ownership claims over real estate, artwork and other valuable property.

NEW YORK—Even as proceedings in the Salander-O’Reilly Galleries bankruptcy filing gradually move forward, the tangled case continues to be marked by contentious legal wrangling and competing ownership claims over real estate, artwork and other valuable property.

As part of the bankruptcy proceedings, dealer Lawrence Salander recently sought the court’s permission to place one of his private residences, a townhouse on Manhattan’s Upper East Side, for sale, with an asking price of $25 million.

RFR Realty, controlled by art collector Aby Rosen, owns the building that houses the Salander-O’Reilly Galleries on East 71st Street. RFR Realty, which claims the gallery is in default of $800,000 in unpaid rent, has requested permission from the the U.S. Bankruptcy Court, the Southern District of New York, to commence eviction proceedings, according to a Jan. 18 filing.

Salander-O’Reilly was shuttered and barred from doing further business by a New York state supreme court judge on Oct. 17, after Salander and the gallery were besieged by creditors, clients and investors seeking the return of more than $80 million in artwork and funds they claim are owed.

Salander, his wife, Julie, and the Salander-O’Reilly Galleries, filed for Chapter 11 bankruptcy protection in late November (ANL, 1/8/08, pp. 5-6). Salander originally entered into the lease on the gallery property in November 2004, at a monthly minimum rent of $154,166.67. By December 2007 the rent had climbed to $168,041.66 a month, court documents state.

After late rent payments were repeatedly made by Salander, RFR Realty terminated the lease by serving him with a “Notice of Cancellation” in July 2007, a filing by the firm reports. It notes that “despite the fact that the Notice of Cancellation terminated the lease, Salander has remained in possession of the building.”

Noting that “since Salander’s filing for bankruptcy, Landlord has not received any payment under the Lease,” RFR Realty contends that since it terminated the lease about four months before Salander’s bankruptcy filing, or “pre-petition,” the lease should not be considered part of the bankruptcy estate.

In a filing made on Jan. 29, Salander objects to RFR’s motion, saying that despite the fact that a New York civil court had found in favor of RFR Realty, “the Debtor [Salander] vigorously contested the Landlord’s allegations [and, in a timely manner] filed a motion for reargument and a notice of appeal.”

Salander further argues that RFR Realty’s motion comes at a “critical juncture” in the bankruptcy proceedings, citing the resolution of important issues, such as the appointment of a chief restructuring officer (CRO) and resulting progress on “implementing a protocol to address and resolve competing claims by two bankruptcy estates, individual artists and alleged consigners . . . to the over 4,000 pieces of artwork in the estate’s possession.”

The eviction of the gallery “would require the removal and relocation of more than 2,500 pieces of artwork from the gallery,” according to Salander’s objection.

Support for Salander View

A statement from CRO Joseph Sarachek, of Triax Capital Advisors, supports Salander’s argument. In the statement Sarachek says he explored other leasing options as well as art moving companies and estimated that the cost of moving the artwork and other pieces would be “between $300,000 and $500,000 and would take no less than a month to complete.”

Sarachek summarizes the progress made in the bankruptcy case to date, agreeing that eviction from the gallery would only complicate matters further. Sarachek says that more than 4,200 items, including paintings, sculpture, antique furniture and rugs, have been inventoried to date, at the gallery, as well as at Salander’s Manhattan townhouse and home in Millbrook, N.Y.

“Upon my appointment as CRO, I discovered a Debtor whose business and financial affairs were in utter disarray,” Sarachek states. “The Debtor was the subject of multiple lawsuits. . . . The Debtor’s books and records had been seized by the Manhattan District Attorney’s Office pursuant to a search warrant issued in connection with the DA’s criminal investigation of Mr. Salander.” Salander and the gallery are the subjects of an ongoing investigation by Manhattan D.A. Robert Morgenthau’s office.

Salander also points out in his objection to RFR’s motion that the landlord was given an artwork by Edouard Manet, La Femme aux chiens, “as security for its payment obligations under the lease. That painting has an apparent value of at least two million dollars.”

Another argument put forth by Salander: By his own admission, the gallery was rarely ever on time with the rent, but the landlord never protested, he claims: “[T]he Debtor almost always paid its rent after the fifth of the month . . . the Landlord continued to accept the Debtor’s rent payments, however, and at no time did the Landlord seek forfeiture of the Lease based on that provision, or otherwise protest the Debtor’s repeated defaults thereunder.”

As ARTnewsletter went to press, a hearing on the matter was scheduled for Feb. 14 in Poughkeepsie, with bankruptcy court Judge Cecelia Morris presiding.

Collector Seeks Redress for Missing Works

On another front, collector Carol Cohen has petitioned the court for the right to seek an investigation, under bankruptcy law, of the whereabouts of $3.4 million of artwork that was stored with Salander (ANL, 10/16/07, pp. 7-8). According to a Jan. 24 filing, in early 2007, Salander-O’Reilly took custody of 15 pieces of Cohen’s artwork valued at about $3.4 million “purely for storage purposes. . . . The documentation between the parties is clear [that] the Debtor was not to sell Cohen’s art. Notwithstanding, some time in the spring of 2007, the Debtor did sell Cohen’s artwork, and never told her about it and pocketed the proceeds.”

According to court papers, a Salander employee advised Cohen in September that the gallery had sold the paintings earlier in the year “and at one time had the cash in its custody, but no longer has the money.” Cohen’s motion seeks a deposition of Salander himself, or the “corporate representative with the most knowledge of the disposition” of her artwork, including the identity of any purchasers. A hearing is scheduled for Feb. 18.

Meanwhile, Salander and his wife filed suit against a New York jeweler on Jan. 25 alleging that the firm had violated the automatic stay placed on their assets as a result of their bankruptcy filing. According to the complaint, the Salanders’ last purchase from Madison Avenue jeweler Edith Weber & Associates occurred in December 2006: “Of the total purchase price, $80,000 remained outstanding. The Debtors did not make any subsequent payments to Weber.”

Additionally, the Salanders’ complaint continues, they left their entire collection of jewelry with Weber in October 2007 for the “sole purpose of appraisal,” to ascertain its market value. On Nov. 6, when Julie Salander returned to pick up the jewelry, Weber “refused to return the property.” The Salanders assert that the jewelry has an “aggregate value of about $180,000 and constitutes assets properly part of the Debtors’ estate.”

The Salanders are asking the court to find Weber in contempt of the automatic stay, which, their complaint states, acts “as a fundamental debtor protection provided by the bankruptcy laws, ceases all harassment and all collection efforts, relieving the debtor of the financial pressures that drove him into bankruptcy.”

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