Chicago violin shop bankruptcy

June 21, 2017, 4:06 PM · I am looking for advice concerning a sad situation concerning a Chicago violin shop. I consigned violins to a dealer for sale and in the last few days received a notice from the dealers lawyer that all my instruments have been sold to a "third party" and I am to receive basically pennies on the dollars for the value of my property.

My email states " Please be advised that xxxxxxxxxxxxxx ceased operations in March of this year and we are preparing to file bankruptcy for the company. The company does have limited funds to make settlements but there are many parties to whom money is owed."

Here we are in June and I have been notified that operations ceased in March. The obvious ethics issue is obvious on so many levels but my reason for posting is to know whether others have gone through this quagmire and if any suggestions would be given. We know the obvious answer of get a lawyer etc but we are looking for other persons experiences.

Replies (44)

June 21, 2017, 4:37 PM · Why don't you name the shop? I have stuff on consignment in Chicago....
June 21, 2017, 4:44 PM · I always thought consignments were on loan until sold; not part of a dealers inventory and that the owner had the option of refusing a deal if less than the asking price. The instrument should have been returned to the owner instead of being sold for pennies on the dollar to a third party in my view. But then, I am no lawyer.
June 21, 2017, 4:48 PM · This is surprising, I never thought that an instrument in consignment would be part of the shop's inventory. It belongs to you, and the shop is selling it for you for a commission. You as the owner still have to agree on the selling price. I don't understand how the instrument could be handed over to a third party without your agreement, this doesn't sound right.
June 21, 2017, 4:48 PM · Yes,
Why aren't the instruments simply being returned to you?
Edited: June 21, 2017, 6:12 PM · How long ago did you consign them, and when did you last check on their status? It could be that your instruments were sold months ago for your asking price, but the shop, in their financial desperation, used the money to cover their own debts at that moment. That would be my first guess. I hope you have some recourse, but I fear that you're out of luck.
June 21, 2017, 6:18 PM · It also depends a lot on what your contract/paperwork with them says. You need to get that checked out. And yeah, lawyering-up is the way to go.
June 21, 2017, 6:25 PM · If they're out of business and there's no money to get, it really doesn't matter anymore what the contract says.
June 21, 2017, 6:43 PM · Mark,

I think it is more that the items might have been sold off illegally as part of the settlement, in which case there could be a legal recourse with whoever they did the bankruptcy though.

(I'm very sick at the moment, this is my disclaimer if I'm spouting gibberish)

June 21, 2017, 7:38 PM · Which shop are we talking about?

Instruments on consignment are not owned by the shop and are not considered part of its assets in a bankruptcy. You have to approve any sale.

This sounds like it may be theft, not merely a commercial dispute, and when you consult a lawyer, you should ask him if you should talk to the police.

June 21, 2017, 7:51 PM · Please name the shop. I have a violin on consignment in Chicago also.
Edited: June 21, 2017, 8:09 PM · "If they're out of business and there's no money to get, it really doesn't matter anymore what the contract says."
Mark, it matters because the paperwork might detail who retained the de-jure right to do -whatever- with the instruments in question. Were they custodians with the authority to do as they pleased or merely temporary bearers, that kind of stuff, which would determine if the OP got legally screwed out of their instruments, or robbed.
Edited: June 21, 2017, 10:44 PM · Interesting article:

It appears everyone here should consult with an attorney if they are consigning a valuable instrument so that the proper paperwork may be filed to perfect their interest which will provide a secured creditor status in bankruptcy, were it to occur.

Laurie, you should interview an attorney that deals with fine musical instruments and have consignment and ensuring legal protection from loss in such an arrangement as one of the topics of discussion; that would be a valuable service to the violinist community.

June 22, 2017, 3:21 AM ·
Laurie, the above suggestion is welcome and would be immensely helpful to all string players, especially younger players who are just starting out. Buying and selling is something that we as musicians do and most of us assume that such events that we are discussing will never happen, yet they do and we are taken by surprise. If you have contacts that are versed in the legal implications of selling etc. there are many of us that are interested. We all read our contracts and yet unexplained complications happen. We all have perhaps a naive trust in the system that perhaps is too ideal. Also the relationship that we have with the tools of our art complicates matters and adds an emotional component. I am traveling in Europe at the moment with sporadic wifi, but I do appreciate the contributions of my fellow artists.
June 22, 2017, 3:29 AM · I have instruments in Chicago too, what shop is this?
June 22, 2017, 6:18 AM · As others have said, ownership of an instrument on consignment remains with the original owner until said instrument is sold. I agree that this sounds like theft.
June 22, 2017, 6:46 AM · I can say only about my experience: i had 2 violins in consignement and the contract stated that 30% of the value was to the dealer. The dealer also went out of business, and the instruments were returned to me. I had to pay about 50 USD/instrument for "administrative fees" (which i didn't question, given the circunstances).
June 22, 2017, 7:06 AM · Since a number of players have inquired, the shop is Dixon - Stein.
Edited: June 22, 2017, 7:22 AM · I happen to be both an attorney and a violinmaker. I work with many fine arts clients, am on the board of the Violin Society of America, and teach art law courses to law students.

I am not familiar with the details of this matter, so like any good lawyer I will give the disclaimer up front that I am not providing legal advice and you should consult your own attorney on this matter.

But in a general sense, Jason’s post above is on the right track, and I know that many people are surprised by that result, as it doesn’t necessarily follow the “common sense” logic that several people in this thread have expressed. Consignments are governed by the Uniform Commercial Code (UCC). Under the UCC, having a written consignment agreement is not typically sufficient to prove a consignment arrangement against a secured creditor of the dealer or bankruptcy trustee. So, in the case of a violin dealer, the bankruptcy trustee can treat the owner of the instrument as an unsecured creditor of the dealer and the consigned instrument as part of the dealer's inventory. In plain English, that means that the consigned instrument could be sold as part of the bankruptcy and the owner of the instrument would be paid like all of the dealer’s other unsecured creditors, which would likely mean that the owner would receive pennies on the dollar. That being said, there are always legal loopholes and arguments that can be made, so it is worth consulting with an attorney on the specific facts.

The way to protect a consigned instrument from this issue is to file a UCC-1 financing statement with the state where the dealer is located at the time that the instrument is consigned. This filing puts all of the dealer’s creditors on legal notice that the instrument is cosigned and not the property of the dealer. Filing this form is straightforward and does not require an attorney. Once the form is filed, the owner of the instrument would typically be considered a “secured creditor” in bankruptcy instead of an “unsecured creditor,” which would give the owner priority over the other creditors with regard to the consigned instrument.

Obviously, in the fine arts world, the UCC-1 form often isn’t filed, either due to lack of knowledge or due to the often informal culture of arts transactions. As a result, about 31 states have specific statutes that specifically protect artists from abuses by dealers/galleries and also from the creditors of the dealers/galleries. Illinois, where the shop here is located, has such a statue which provides that a consigned “work of fine art” is not subject to the claims of the creditors of the art dealer to whom it was consigned. The open question is whether a violin fits the definition of a “work of fine art” under that statute. Based on the text of the definition, it appears that an argument could be made that it does apply, but I have not researched whether that argument has been made and, if so, whether it has been successful. If the original poster does engage an attorney in this matter, it would be worth asking him or her.

June 22, 2017, 9:17 AM · Wow. I'm astonished that this happened to you, Davis. I don't have any advice, but I'm very sorry.
June 22, 2017, 11:23 AM · Good grief, this is awful. I bought a nice cello from Dixon Stein in 2010; they gave me excellent service. What a terrible turn of events. And a relief, as I have a consignment with Eric Swanson.
June 22, 2017, 2:40 PM · Dixon-Stein.... makes this past archived post interesting: LINK.
June 24, 2017, 8:09 AM · Consider filing a police report in Chicago. Also, contact your instrument insurer. Many policies have exclusions that relate to consignments, but sometimes those don’t apply if there is some kind of fraud or deception. It might also be helpful to point them to recent articles about Dietmar Machold. Finally, keep in mind that bankruptcy law is not intended to shield persons who engage in illegal or fraudulent activities.
June 24, 2017, 10:40 AM · In the UK the buyer of stolen property does not have the right to keep it, but is legally obliged to return it to the owner, whether they knew it was stolen or not. What is the law in the USA?
Edited: June 24, 2017, 7:18 PM · If a violin under consignment is considered an asset of the dealer then once he files for bankruptcy he may be obligated to liquidate it to satisfy other creditors. It may actually be illegal or for him to give it back to you at that point.
June 24, 2017, 7:32 PM · Just wondering when any article under consignment would be considered an asset of the dealer? Ownership remains with the owner until it's sold. Isn't that the whole point of consignment?
Edited: June 24, 2017, 7:41 PM · How can a violin on a consignment be ever considered the property / inventory of the dealer?! What document is produced to prove transfer of ownership from you to the dealer? The dealer is providing a service to you and is paid ONLY after the service is provided - violin is sold under your conditions of sale. If I borrowed a Ferrari from my friend and went bankrupt, would that Ferrari be ever considered my property just because it happened to be parked in my garage?
The dealership did not go bankrupt over one night. They knew they were in financial trouble and kept it from you.
I am not a lawyer, and in my vocabulary this is theft - plain and simple.
File a report with the police.
Edited: June 24, 2017, 7:48 PM · I've been living in the Chicago area for 52 years and I've never heard of Dixon Stein. -Not surprised they went out of business.
June 24, 2017, 8:01 PM · Hello all,

My husband is a corporate bankruptcy and reorganization lawyer, and he confirms that Mr. Zak Moen is right on the issue of consignments in the case of the dealer filing for bankruptcy.

June 24, 2017, 8:42 PM · Basically, it appears that the issue the UCC is trying to address by requiring the extra paperwork to be filed is that otherwise, it's really hard to tell what's under consignment and what's not when you are liquidating a warehouse full of goods. The rules were set up for large companies, but they apply to everyone for the sake of uniformity.

I looked up the UCC-1 form for Colorado where I live, and it is fairly straight forward (although some of the terms on the form are a little strange). However, it's good to know it can be filed without having to consult a lawyer, meaning that consignment is still a good option for selling a violin, assuming you do file the form.

OP, I'm terribly sorry that this misfortune has befallen you, but thank you for bringing it to out attention so we can try to avoid such a situation arising again. If you have a gofundme (or the like), I'd love to chip in.

June 24, 2017, 11:20 PM · Unbelievable! An ethical honorable dealer would return all consigned instruments BEFORE declaring bankruptcy..! This is legalized theft at its best... god love America! I wonder how Canadian Law compares? Any Canadian Lawyer amongst us?
Edited: June 25, 2017, 4:20 AM · Davis, if you found out who the third party to whom the instruments were sold is, please let us know so that we can "name and shame." The violin world is not so large. It's horrible that this can happen...

From the letter it also sounds like they are only preparing now to file for bankruptcy. I don't understand how they can have not filed and yet already sold the instruments. I might still immediately fill out the UCC-1 form (would it make a difference if filed pre-bankruptcy?) and also see if there is legally anything that may be done in the face of their filing.

June 25, 2017, 5:08 AM · Roger St-Pierre, thanks for doing a better job than me in highlighting the ethical point of this issue in such a few words.
Thank you Zak Moen for writing about the legal aspects of this sad situation.
June 25, 2017, 5:17 AM · "Unbelievable! An ethical honorable dealer would return all consigned instruments BEFORE declaring bankruptcy..!"
On my ethical side I totally agree but at least in Germany you commit an offense if you remove parts of the bankruptcy astate the moment you know you will get bankrupt.
This is a very bad situation and I feel very sorry!
June 25, 2017, 5:23 AM · I have two violas in consignment with this shop, they are locked in the shop now.... The problem is that I don't have the agreements, they were left there by friend players, I only have emails as evidences of that. I am afraid about the instruments.
June 25, 2017, 5:26 AM · Oh damn it! Best of luck!
June 25, 2017, 5:45 AM · I am really sorry you are caught up in this crime, Manfio, last thing you need, I'm sure.
Edited: June 25, 2017, 7:11 AM · I don't know enough about law to know whether a consignment agreement can be written that would prevent instruments from being considered dealer assets in a bankruptcy filing. My guess is that one runs the risk of trying to supersede applicable state laws. The problem we all have, whether as makers or players, is that there are really not that many good alternatives for selling instruments besides "through dealers." Violins are not like used cars. Even Chinese violins with "model numbers" are hard to sell by an individual.

Maybe those selling violins through consignment, especially makers wanting to dispense multiple instruments, should ask to see some of the dealer's financial statements before consigning their property there. If the dealer falsifies those, that's fraud, and as was noted above, bankruptcy doesn't shield a dealer who has conducted business fraudulently. On the other hand if a dealer sells your instrument, doesn't tell you about it, spends the money on rent, and then goes bankrupt, then you're still screwed. Putting the dealer in jail for fraud doesn't bring back your violin.

June 25, 2017, 7:55 AM · The "Stein" in Dixon Stein is Elizabeth Stein, the Chicago Symphony League's president. She has a corporation of her own, as well as a reputation to protect -- the CSO League is a major fundraising organization in the arts life of the city.

This is a place where contacting the Chicago Tribune may be of benefit. The press is almost certain to be interested in this story.

June 25, 2017, 9:08 AM · There was an Elizabeth Stein that was the President/Manager of the Chicago Machold shop.
Edited: June 25, 2017, 3:39 PM · @Paul "Putting the dealer in jail for fraud doesn't bring back your violin."
True, bit this case stresses what I have stated many times on this site: violin trade business is not regulated and (some) dealers are quite un-ethical doing it. If proven to be fraudulent, I would say throw the book at them.

If an online petition would make any difference in this case, count me in.

This is also a call to all honest and hardworking violin dealers to consider establishing an association of music instrument sellers with strict criteria for membership and serious business oversight.

June 25, 2017, 2:19 PM · What happened to the last post by Manfio?

It is now gone.

June 25, 2017, 3:32 PM · This is an absolutely abhorrid occurence. The violin community is a small one, and much of the success of shops is built on trust, reputation over time, and ethical practices for the community at large. Also dealers or musicians may leave large deposits or payments with other dealers, luthiers, or workshops, without safeguards in place. It is too bad to see this kind of thing happening, it sheds a bad light on business, and we see it happening in all sectors of business. There should be no benefit in liquidating others' property if it is a true bankruptcy. Like others said, the responsible thing to do would be to give property back; this seems like a case of irresponsibility, laziness, and malpractice. I hope justice is served and things turn out ok for the consignors.
June 27, 2017, 3:12 PM · I've heard tell that the same problem can arise in other similar circumstances, such as when you take your car into a garage for repair or overhaul, and the business goes bust while your car is still on the premises.
June 28, 2017, 9:40 AM · Hmmm... I wonder if the fact that cars have titles helps in that case.

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