Court Excludes Art Appraiser’s Testimony (NY)

A clothes dryer ironically causes a fire in the mansion of a clothing designer. The manufacturer of the dryer is sued for damage to original art. As often is the case during art litigation, the case turns into a battle of experts to determine the value of the art.

Last month, in Oleg Cassini Inc. v. Electrolux Home Products Inc., a New York Federal Court excluded from trial an art appraiser’s testimony despite 27 years art appraisal experience; a Bachelor of Fine Arts from Cornell University; a Master’s in Industrial Design from Syracuse University; courses at the Rhode Island School of Design; certification in appraisal from New York University; membership in the Appraisers Association of America; a license through the Uniform Standards of Professional Appraisal Practices; and previous qualification as an art appraisal expert by a Federal Court in Alaska.

The New York Federal Court found nothing wrong with the methodology used. So what happened? The expert’s valuation experience in this specific type of art (fashion sketches) was unclear; some of the appraisals were based upon photographs taken by others; the report lacked information about comparables such as date of sale, whether sold by auction or private sale, sales price, and the reason for selection; and calculations were not explained.

Experts are critical in damaged art litigation, not to mention expensive. Follow the roadmap set out in Oleg Cassini Inc. to avoid being caught at trial up a creek without an art appraisal expert.

Thanks to Betsy Silverstine for her contribution to this post.  For more information, please write to Mike Bono.

Found Stolen Art? There’s An App For That.

Italy’s heritage police recently announced the release of a smartphone app that will allow people to take a photograph of art works that they suspect are stolen and then send the photo directly to the heritage police.  The heritage police can then compare the photo to their archives, which include the largest data bank of stolen art in the world — about 5.7 million objects.  There will also be information on the app about artwork that the police are searching for, and to help people find the nearest heritage police station.

I can’t help but wonder if the heritage police are being overly optimistic, or if Italians actually use their smart phones for more than taking selfies or playing Candy Crush.  It will be interesting to see if this proves to be a valuable law enforcement tool, or winds up being taken down when it is overrun by pranksters and crackpots.

Please write to Mike Bono for more information.

New York Applies Wide Definition of “In Transit:” Transit Insurance Covers Cash Stolen from Vault.

In CashZone Check Cashing Corp. et al. v. Vigilant Insurance Co. et al., Index Number 653245/11 the Appellate Division, First Department, reversed the trial court’s determination that cash that was stolen from the vault of an armored car service company was not “in transit” pursuant to the terms of the insurance contract. The facts of the case are as follows.

Plaintiff CashZone hired Mount Vernon Money Center, an armored car company, to transport currency from the Federal Reserve Bank of New York. Mount Vernon would pick up the money from the Fed and then take the money to its vault where it would be processed for delivery to CashZone locations. While at the facility, Mount Vernon’s principals embezzled $470,000 as part of a fraudulent scheme. Mount Vernon’s principals were indicted of bank fraud and pleaded guilty.

CashZone filed a claim with Vigilant under its insurance policy’s “in transit” provision. Vigilant denied coverage for the loss, claiming that the money was not “in transit” but rather was within Mount Vernon’s vault. The trial court agreed with Vigilant, finding that the stop at Mount Vernon’s vault was not an “incidental” stop but a substantive interruption of the transit process.

The First Department reversed, noting that New York courts apply a broad definition of the term “in transit” and refused to accept the cases cited by Vigilant from other jurisdictions.
The court ruled that the entire time Mount Vernon possessed the cash was “one continuous shipment process,” and that the stop at the vault “was expressly understood by all concerned as a necessary component of the act of delivery of cash by armored car from the Federal Reserve Bank to plaintiffs’ locations.” The court reasoned that as long as the cash remained in the possession of the armored car service making the delivery, and the stop at issue was in service to that delivery, the property was in transit until the downstream delivery was completed.
The court also rejected the Vigilant’s argument that the endorsement covered only thefts by a third party from the transportation company, and did not cover theft by the transportation company itself, finding that the endorsement provided for no such distinction.

CashZone shows that New York jurisprudence focuses on the purpose of a contract — not the process by which it is achieved. Specifically, the case stands for the proposition that “storage” — if incidental to the object of transport — will be covered by a transit endorsement. WCM believes that CashZone should be read in a larger context. By analogy, its logic reaches past armored car risks to other shipping contracts such as fine art and storage agreements.

If you have any questions about this case please contact Dennis Wade at dwade@wcmlaw.com.

Perelman’s Fraud Suit Against Gagosian Gallery Allowed to Proceed (NY)

A decision was recently rendered in the longstanding lawsuit between Ron Perelman’s investment group, MAFG Art Fund, LLD, and the Gagosian Gallery.   As the value of art continues to climb, more transactions will involve investment groups rather than individual collectors, and this decision touches on some interesting issues in that regard.

The suit arises out of convoluted claims involving a series of art purchases made by the investment group in exchange for cash and credit given to the group for consigning other art to the gallery. One of plaintiffs allegations was that, based on the Gallery’s superior knowledge of art, the Gallery had a fiduciary duty to accurately value the price of works involved in the exchange transactions, and that the Gallery breached its duty.  The Court, however, pointed out the extensive art collection and art investment experience touted by the plaintiff in its complaint; the fact that they were engaged in the business of art investments; that they alleged they had “staffs to work out paperwork;” that they were represented by counsel; and that they were owned by the renowned businessman, Ronald Perelman.    Based in part on this “arm’s length” transaction, the Court dismissed the breach of fiduciary duty count.

The other point of interest concerned plaintiff’s claims that the Gallery fraudulently represented the value of certain artwork.  Generally, even when a party possesses unique and superior knowledge, statements concerning value of art are “non-actionable opinion.”  Here, however, plaintiffs alleged that the Gallery repeatedly represented the value of the art was based on market data and sales information, and that the Gallery’s statements about those existing facts were knowingly false.  Although the Gallery tried to establish through the use of redacted invoices that plaintiffs received higher credits than the valuations provided by the Gallery, the Court refused to consider such proof on a pre-answer motion to dismiss and allowed the lawsuit to proceed into discovery.

Apparently the Judge urged the litigations to settle the matter “at a cocktail party in the Hamptons” so we will see whether the case actually goes forward.  Please write to Mike Bono for more information.

Anonymous Art Auction Bidding Can Continue in New York

We previously posted about  Jenack Inc. v. Rabizadeh, a decision that threatened auction anonymity in New York.

The defendant submitted an absentee winning bid of $400,000 for an antique Russian box to the plaintiff, William J. Jenack Estate Appraisers and Auctions, Inc.  The “clerking sheet” that recorded the transaction identified the consignor of the work by a numeric code, in order to maintain his or her anonymity.  Plaintiff subsequently invoiced defendant, but defendant, for whatever reason, never paid for the antique.

The auction house then sued the winning bidder, and both parties moved for summary judgment, with plaintiff prevailing.  However, on appeal, the Second Department sided with the defendant, finding that the statute of frauds, which requires certain contracts to be in writing, was violated.

New York General Obligations law §5-701, requires, among other things, that a written agreement for goods sold at a public auction list the name of the purchaser and “the name of the person on whose account the sale was made.”  The Appellate Division held that the number on the clerking sheet was insufficient and violated the statute of frauds.  Thus, plaintiff could not enforce the sale, and summary judgment was awarded to the defendant.   Based on this decision, if an auction house wanted to enforce a sale, it needed to reveal the name of the consignor to the purchaser.

The Court Of Appeals recently heard the case, and reversed the Appellate Division.  The Court pointed out that separate writings can be pieced together to satisfy the statute of frauds, finding that the clerking sheet clearly linked up to the absentee bidder form, which spelled out all of the purchaser’s details.  In addition, the Court found that the actual owner/seller does not need to be identified either, because naming the auctioneer, as agent for the seller, was sufficient.  As a result, the statute of frauds and New York’s statute on auctions were satisfied.

If you would like further information, please write to Mike Bono.

United States Supreme Court Rejects Attempt To Upset WCM’s Win In $25 Million Art Loss

On November 6, 2013, in Renaissance Art Investors, LLC (“RAI”) v. AXA Art Insurance Corp., the United States Supreme Court denied RAI’s petition for a Writ of Certiorari, bringing to a close a coverage battle that stemmed from the collapse of the Salander O’Reilly Art Gallery.

In March 2010, the now infamous art dealer Larry Salander pleaded guilty to a $120 million fraud scheme, admitting to stealing numerous works of art.  Renaissance Art Investors LLC claimed that it was entitled to coverage for Salander’s theft of approximately $25 million in artwork under insurance policies issued by AXA Art Insurance Corporation.

RAI consigned its artwork to Salander, a principal of RAI, and the Salander O’Reilly Galleries LLC, a member of RAI.  Ultimately, Salander and the Gallery betrayed RAI, stealing artwork valued at over $42 million.  RAI made a claim to AXA under its commercial inland marine insurance policies, seeking indemnity for the theft.  Litigation followed and the trial court awarded summary judgment in AXA’s favor, finding that there was no coverage for the loss under AXA’s policies.

In a unanimous decision, the Appellate Division, First Department, that the AXA policies contained unambiguous dishonesty exclusion.  The exclusion precludes coverage for losses arising from the dishonesty of an insured, anyone with an interest in the property, or anyone to whom the covered property is entrusted.  The Court held that this policy exclusion applied to both Salander and the Gallery, who were entrusted with the artwork.

The First Department affirmed the trial court’s decision, holding that as a matter of law, insurance coverage only extends to fortuitous losses, even under all-risk policies.  The Court explained that whether there was a fortuitous loss is a legal question to be resolved by a court.  Applying this standard, the Court held that the fraud perpetrated by Salander and the Gallery, which resulted in the loss, was not fortuitous.

The Court of Appeals (New York’s highest court) refused leave to appeal from the First Department’s unanimous decision.  RAI then sought review from the United States Supreme Court, citing conflicts in authority on procedural and jurisdictural issues.  But the top court in the land rejected RAI’s petition.  And so, WCM’s summary judgment win stands after levels of judicial scrutiny rarely seen in insurance cases.

Art Thief Threatens to Sue Museum for Lax Security

In what can only be described as a novel approach to pending civil claims against him, a Romanian art thief who has admitted to stealing masterpieces by Gauguin, Monet and Picasso has threatened to sue the Dutch museum he took them from for making his robbery too easy. Radu Dogaru is among six Romanians arrested for last year’s “spectacular three-minute heist” from the Kunsthal museum in Rotterdam.

Despite the fact that the art had an estimated value of $24 million, apparently none of the paintings were equipped with an alarm.  As a result, Dogaru’s attorney told the court that the museum’s negligence ought to have “serious consequences,” and that his client was  considering hiring Dutch lawyers to bring a lawsuit against the museum for its comparative negligence for the potential civil claims faced by the thief.

Unfortunately, it seems his attorneys were not as creative in defending the criminal action, as Dogaru has already pleaded guilty and faces a maximum sentence of 20 years in prison.   Whether he takes a break from his incarceration to file his proposed lawsuit remains to be seen.

 

Fraud Cases Against the Knoedler Gallery Move Forward (NY)

We recently posted about the guilty plea by Glafira Rosales involving the forgeries sold through the Knoedler Gallery.  In a related civil action filed by art collectors, the federal court has recently denied a motion to dismiss the complaints and determined that most of the counts filed against the gallery and a former director, Ann Freedman, can move forward.

The outcome of the motion is not surprising, considering that, when determining a motion to dismiss, all of the allegations must be taken by the Court as if they were true.  And the complaint alleges many serious actions taken and misrepresentations made by the gallery and Freedman regarding the authenticity and provenance of the works in question.

For example, it is claimed that Freedman and the gallery were aware that forensic testing determined that certain paintings obtained by Rosales were forgeries, but that they decided to reject the expert’s conclusions and failed to disclose that information to potential purchasers.  For another work, it is alleged that Freedman and the gallery received a very negative report from the International Foundation for Art Research (IFAR), so the defendants decided to change their story about the origin of the work, and submitted no other works that they obtained from Rosales to IFAR.

The defendants continue to deny all of the allegations, so it will be interesting to see whether plaintiffs can provide any proof to these claims during discovery.  These defendants clearly offer a better chance than Rosales for a potential recovery, but plaintiffs will need strong support for their allegations of wrongdoing.

Please write to Mike Bono if you would like more information.

 

 

NY Dealer Pleads Guilty In Fake Art Scheme

We previously posted about the indictment of Glafira Rosales, the art dealer indicted by the US Attorney’s office in New York for her participation in an expansive scheme to sell fake art works to galleries, including the Knoedler Gallery.  Rosales has now plead guilty to a number of significant felonies, including conspiracy to sell the fake art, money laundering, and tax crimes.

Rosales claimed that she obtained the art — purported to be painted by Modernist masters such as Pollack and Rothko —  from two anonymous collectors from Switzerland and Spain.  Instead, all of the fake works were produced by a single painter who worked out of his garage in Woodhaven, Queens.  The paintings were then treated so that they would have the false patina of age.

According to the US Attorney’s office, Rosales was paid approximately $33.2 million for the fake art.  She agreed to forfeit that amount as part of her guilty plea, but it remains to be seen how much of that amount is actually recoverable.

We were interested to see how the US Attorney’s office was going to prove that the works were indeed fake, but that point is now moot.  Indeed, during her plea Rosales admitted that the paintings were “fakes created by an individual in Queens.”  No doubt her statement will be used by the plaintiffs in the civil lawsuits filed against Rosales and the galleries, and the question of interest to now follow is whether the galleries are found liable.

Please write to Mike Bono if you would like further information.

Art Dealer Indicted for Sale of Fraudulent Art (NY)

The Knoedler Gallery story was in the news again recently, as Glafira Rosales, the dealer at the heart of the fraud, was indicted by the US Attorney’s office in New York. The indictment details an extensive fraudulent scheme, involving over 60 works of art and $30 million.

The indictment alleges that over a 15 year period, Rosales sold paintings to two galleries that purported to be by notable artists such as Jackson Pollock, Mark Rothko, and Willem de Kooning.  Rosales claimed that she obtained the works from two anonymous collectors, one from Switzerland and the other from Spain. Instead, it is claimed that Rosales knowingly sold fraudulent works, funneling the proceeds into various bank accounts maintained by her or her boyfriend.

One interesting aspect of the indictment is the extent of the tax crimes and money laundering charges.  Indeed, the fact that the paintings sold were fake seems secondary.

But on that issue, a recent article raises an interesting question: how will the US Attorney’s office establish that the works are counterfeit?  In a number of related civil suits, the plaintiffs used forensic conservator James Martin, who analyzed the type of paint used to create the works.  But the civil defendants have challenged those findings, and it will be interesting to see how this issue impacts the criminal case.  Unfortunately for Rosales, she will still need to face the battery of financial crimes.

Please write to Mike Bono if you would like more information.