## Facts

- Mark Rothko died testate in 1970; his estate’s principal asset was 798 paintings of very high value.
- Three executors were appointed: Bernard J. Reis, Theodoros Stamos, and Morton Levine.
- Reis was an officer of the gallery involved in the estate transactions, and Stamos was an artist under contract with that gallery, creating conflicts with the estate.
- Shortly after appointment, the executors disposed of all paintings through two May 21, 1970 agreements with related Marlborough entities:
  - A sale of 100 paintings for $1.8 million, with $200,000 paid up front and the balance paid interest-free in equal installments over 12 years.
  - A consignment of approximately 700 paintings for 12 years, allowing specified annual sales with a 50% commission (40% in certain dealer sales) and requiring sales not below appraised estate value.
- Beneficiaries and the New York Attorney General (on behalf of charitable beneficiaries) sought removal of the executors, rescission, return of unsold works, and damages including increases in value for works already sold.

## Issues

1. Whether the executors’ relationships with the Marlborough entities constituted disqualifying conflicts and self-dealing triggering the no-further-inquiry rule.
2. Whether an executor who did not personally profit is liable for knowingly acquiescing in co-executors’ breaches rather than attempting to prevent them.
3. Whether rescission and “appreciation damages” are available against fiduciaries and transferees who took with notice of the breach when the property cannot be returned.
4. Whether the decedent’s prior dealings with the gallery and selection of these executors operated as a waiver of conflict-of-interest objections.

## Decision

- The Court of Appeals affirmed in substance the removal of all three executors for breach of fiduciary duty.
- The court held Reis and Stamos engaged in impermissible conflicts in transactions with Marlborough entities, making the contracts voidable under the no-further-inquiry rule without litigating fairness.
- The court held Levine liable because he knew of the conflicts and acceded to the transactions rather than taking steps to prevent the breaches, despite reliance on counsel.
- The court upheld rescission to the extent possible, return of works still held by the Marlborough entities, and monetary relief where return was impossible.
- The court approved charging responsible fiduciaries and transferees with notice with appreciation damages for paintings that had been disposed of and could not be recovered.

## Legal Principles

- Fiduciaries owe a strict duty of loyalty and may not place themselves in positions where personal interests conflict with those of the estate.
- Under the no-further-inquiry rule, once self-dealing or a disqualifying conflict is shown, the transaction is voidable without examining whether its terms were fair.
- A co-fiduciary who knows of another fiduciary’s breach and fails to make efforts to prevent it, instead consenting or acquiescing, is legally accountable even if acting on advice of counsel.
- A transferee who takes trust or estate property with notice of a fiduciary breach may be liable; if the transferee has disposed of the property, liability may include appreciation damages reflecting the value increase the estate would have retained absent the breach.
- A testator’s prior business relationship with a counterparty, and the selection of fiduciaries who have outside ties, does not by itself authorize conflicted post-death transactions that materially depart from prior arrangements.

## Conclusion

The court enforced the duty of loyalty through the no-further-inquiry rule, voiding conflicted art sale and consignment arrangements, removing the executors, and permitting rescission and appreciation damages against culpable fiduciaries and notice-taking transferees to restore the estate’s lost value.


In re Estate of Rothko, 43 N.Y.2d 305 (N.Y. 1977)