Fraud Claims Against Art Gallery Dismissed (NY)

Maintaining an action against the seller of art the stems from the sale of a forgery is not an easy task.  Recently, an interesting suit was filed in federal court in New York, in which an art purchaser sued a gallery for fraud when paintings sold by the gallery were discovered to not be authentic.

In Arthur Properties v. ABA Gallery, Inc., the purchaser alleged that the gallery’s principal was an expert in Russian art, that he sought to dissuade the purchaser from conducting his own expert evaluation, and that an expert retained by the buyer after the sale was easily able to determine that the paintings were forgeries.

The gallery moved to dismiss the complaint, and the Court reiterated the longstanding requirements for fraud claims:  the circumstances constituting fraud must be plead with particularity; must allege a misrepresentation or a material omission of fact that was false and known to be false and made with the purpose of inducing the other party to rely on it; and must also allege facts giving rise to a strong inference of scienter.

Scienter generally means intent or knowledge of wrongdoing.  In this context, a party must allege facts to show a defendant had both motive and opportunity to commit fraud, or allege facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.

Here, the Court found that the allegations were lacking, as they simply claimed, in essence, that the galleries principal was an expert, so he should have known the paintings were forged.  Thus, they failed to support a strong inference of scienter. 

Further, the Court held that the allegations lacked specificity.  The general allegations that gallery’s principal spoke about “the painters who he claimed had authored the paintings” were insufficient to establish fraud.  As such, the Court dismissed the fraud claims.

Please write to Mike Bono at mbono@wcmlaw.com if you would like more information about this case.