The auction of 19 pieces of equine artwork by the financially ailing New York Racing Association has been canceled after Sotheby's auction house withdrew the sale under threat of legal action by the state government."Any sale of this artwork would need to be authorized by our board and the (NYRA) oversight board, but we remain unconvinced that this is an appropriate action to address NYRA's fiscal situation," said Cheryl Buley, the new chairwoman of the state Racing and Wagering Board.A half-hour before the state's announcement, NYRA officials all but threw in the towel. "I don't think it's going to (be) happening," William Nader, a NYRA spokesman, said of the planned Sotheby's auction.Nader said Sotheby's, threatened along with NYRA with legal action by the state if it held the auction, had insisted on a letter from the state agency okaying the auction.Nader said NYRA expected the auction would have brought about $1.3 million, money that NYRA needs to help resolve a mounting cash flow crisis that is threatening it with bankruptcy. Sources said NYRA bankruptcy lawyers have been stepping up work on a possible bankruptcy filing. Nader would only say that bankruptcy remains a possibility.NYRA is still holding out hope it can proceed with a sale of 80 parcels of land in and around Aqueduct racetrack. The state has said NYRA cannot proceed on its own with the sale and must get approval from either the state racing board or a new state financial oversight board that is monitoring NYRA's finances. The land issue has not yet been resolved and NYRA has slowed what it originally planned as a quick sale of the parcels."This would have been a help," Nader said of the auction of the paintings. "The sale of the land would be a much bigger help."The state maintains NYRA does not own the racetrack land, a claim NYRA disputes. State officials say NYRA holds a racing franchise that does not extend to ownership of things like land or the paintings. NYRA maintains the paintings, mostly given to NYRA over the years by horse owners, are its to sell.Michael Hoblock, the former chairman of the racing board, vehemently opposed the artwork sale. Gov. George Pataki bounced Hoblock out of his post on Nov. 29 after Hoblock refused to resign to make way for a new Pataki appointee. Hoblock remains on the two-member board, having been replaced by Buley as acting chair of the board.Two weeks ago, Hoblock warned both NYRA and Sotheby's that the auction was "unauthorized" and would be met with legal action from the state if it was not halted."We have always believed and continue to believe we are within our rights to sell the paintings, but we also understand Sotheby's position that it needs a letter from the state to go forward with the sale," Nader said.