Bankruptcy Judge Mary F. Walrath penned an opinion that reads like a treatise laying out the limited circumstances when a trustee can become personally liable for selling property at a low price.
Although she sits in Delaware, Judge Walrath was presiding over a case from the Virgin Islands involving a formerly rich man in chapter 7. The dispute involved a painting by impressionist painter Camille Pissarro that the debtor had purchased for $500,000.
The trustee first got permission to auction the painting at Christie’s Inc. The gallery held the painting for three years and finally decided not to hold an auction because it might not be able to convey good title since the work may have been stolen by the Nazis in the 1940s. Christie’s nonetheless estimated the painting’s value between $70,000 and $90,000.
With court authorization, the trustee hired a second auctioneer, who sold the painting for $75,000. The new auctioneer disclosed the problem with provenance to all potential purchasers, although the trustee did not disclose the provenance questions to the court along with the retention application.
The debtor in substance sought to surcharge the trustee, contending the painting was worth at least the $500,000 he paid. Judge Walrath denied the motion in her opinion on Sept. 7.
For starters, Judge Walrath said the trustee was entitled to immunity from claims of breach of fiduciary duty because Christie’s problems with provenance were not sufficiently material to require disclosure to the court. It was sufficient, she said, for the trustee to have made the disclosure to bidders.
Even were there no immunity, Judge Walrath said the trustee had not violated a fiduciary duty.
She said that a trustee “will not always be able to obtain the absolute maximum from each sale” because a trustee “is required to balance the objective of value maximization with the need for minimization of costs.” Consequently, retention of the second auctioneer, who had less experience with valuable paintings, was a valid exercise of the trustee’s business judgment.
The $500,000 price the debtor had paid was not a controlling indication of value because the $75,000 hammer price at auction was within Christie’s estimate, according to Judge Walrath. Even if the trustee had breached his fiduciary duty, she said the “debtor’s claim would still fail because he has not proven any damages.”