Category Archives: Fine Art

Nazi Art Remains a Problem.

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In 1998, through the Washington Principles on Nazi-Confiscated Art, governments and museums agreed to honor a special responsibility to repair the damage caused by Nazi looting of Jewish owned art. According to the NYT, this special responsibility has been hijacked by museum lawyers who are running technical defenses to have claims dismissed on statute of limitations claims. Good lawyering does not always make good publicity, so perhaps special care needs to be taken to focus on substantive merits and not procedural gamesmanship. Of course, one man’s game is another man’s substance.

If you have any questions about this post, please contact Bob Cosgrove at .

Top Court Refuses to Hear Appeal of WCM’s Win in $25 Million Art Loss

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On May 7, 2013, New York’s highest court refused leave to appeal from the decision of the Appellate Division, First Department, unanimously affirming the trial court’s ruling that AXA Art Insurance Corporation was not obligated to indemnify Renaissance Art Investors LLC (RAI) for the loss arising out of the fraud of Larry Salander.   Wade Clark Mulcahy persuaded the First Department to uphold the trial court’s decision that AXA’s policy exclusion for dishonest acts of the insured barred recovery.

RAI consigned its artwork to the infamous art dealer Larry Salander, a principal of RAI, and the Salander O’Reilly Galleries.  Salander and the Gallery ultimately betrayed RAI, stealing millions of dollars in artwork.  Salander pleaded guilty to a $120 million fraud scheme, admitting to stealing numerous works of art. 

In its unanimous decision, the First Department ruled that AXA’s dishonesty exclusion was unambiguous.  The exclusion precluded coverage for losses arising from the dishonest acts of an insured, anyone with an interest in the property, or anyone to whom the covered property was entrusted.  The Court held that this policy exclusion applied to both Salander and the Gallery, who were entrusted with the artwork.

The First Department also ruled, as a matter of law, that insurance coverage only extends to fortuitous losses, even under all-risk policies.  The Court ruled that fortuity 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 was not fortuitous.

Apart from upholding the so-called dishonesty exclusion in the inland marine policies, the ruling breathes new life into the doctrine of fortuity.

Expensive Vinegar: Jury Awards $12 Million to Collector in Bogus Wine Case (NY)

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Typically, when an auction buyer winds up with a fake item, they have little recourse under the “caveat emptor” principle.  Both the auction house and seller typically issue disclaimers that state they do not guarantee the authenticity of a particular item.

But recently, energy magnate Bill Koch scored a huge trial victory against fellow wine collector Eric Greenberg.  Koch claimed that 24 of the 17,000 bottles of  Greenberg’s wine that he purchased in an auction were not the valuable collectibles they purported to be but instead were fake.

Koch alleged that after he purchased the wine, he learned that Greenberg had previously been told by experts that some of the bottles had been identified as counterfeit.  Despite knowing this information, Greenberg placed them into auction without disclosing their questionable identity.

Greenberg claimed he did not know any wines sold were fake and that it was the responsibility of the auction house to determine whether there were any authenticity issues. But Koch presented witnesses that said Greenberg was aware since 2002 that his cellar contained counterfeit wines, and a former house manager testified that Greenberg told him he planned to resell them.

A jury found in Koch’s favor, awarding him $379,000 in compensatory damages and $1,000 per bottle.  Upon further deliberation, the jury awarded Koch $12 million in punitive damages.     Apparently, the litigation cost Koch $10 million, so it is not quite the windfall it appeared to be, but still a lot better outcome then being stuck with bogus wine.

For more information, please write to Mike Bono.

 

 

Art Foundation Prevails in Warhol Authentication Dispute (NY)

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We’ve previously posted about how litigation is causing art foundations to reconsider authenticating art.  Recently, a court provided support for these foundations by upholding the covenant not to sue clause found in the agreement signed by the art owner that was required by a foundation in support of the authentication services.

In Thompson v. Andy Warhol Foundation, on three different occasions, the plaintiff submitted a drawing to the Foundation that he claimed was an Andy Warhol self-portrait.   The Foundation each time sent plaintiff an opinion that the drawing was not made by Andy Warhol.  Plaintiff filed suit, but summary judgment was awarded in favor of the Foundation.

On appeal, the First Department found that the covenant not to sue barred most of plaintiff’s claims.  The Court also found that there was no special relationship between the parties that imposed any greater duty on the Foundation than those set forth in their written agreement.  The Court also notably again held that “the market place is the appropriate place to resolve authentication disputes”  and was not going to second-guess the decision made by the Foundation.

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

 

 

 

Is the Isabella Stewart Gardner Museum Artwork Hiding Out in Philadelphia?

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Last spring we told you about a potential break in the Isabella Stewart Gardner Museum heist. Whether or not the Connecticut mobster was a rat remains to be seen, but it appears that a breakthrough has occurred. It now appears that most of the stolen art was transported (post theft) to Connecticut and Philadelphia, where it might still remain. The FBI is launching a full blown “arthunt” for the missing works – which will include posters throughout Philadelphia and a FBI web page. The hope is that folks will willingly turn over the artwork since the criminal statute of limitations has expired. We’ll continue to track the story, but, just remember, should you happen to insure someone who turns out to have the art, WCM’s Philadelphia office is all too happy to help out. (Not that as lawyers, we ever hope for contentious claims or lawsuits to arise, mind you).

For more information about this post, please contact Bob Cosgrove at .

Will Anonymous Auction Sellers Be Revealed? (NY)

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For a variety of reasons, potential sellers of art like to remain anonymous when the consign works to auction houses.  The New York Court of Appeals recently agreed to consider an appeal of a controversial decision that has the potential to curtail auction anonymity in New York.

 In Jenack Inc. v. Rabizadeh, 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.

Plaintiff then filed suit to recover for breach of contract, 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.”  Although separate writings can be pieced together to satisfy the statute (indeed, that is what happened here to name the defendant), plaintiff failed to submit any writing that identified the name of the consignor.  The Court held that the number on the clerking sheet was insufficient, violating the statute of frauds.  Thus, plaintiff could not enforce the sale, and summary judgment was awarded to the defendant.

Therefore, as the law currently stands, if an auction house wants to enforce a sale, it must reveal the name of the consignor to the purchaser.  We will continue to follow this case and report on how the Court of Appeals addresses this interesting issue.

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

Are Art Auctions Fair?

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The New York Times recently published an interesting article debating whether the art auction industry needs further oversight and regulation based on some dubious auction practices.

For example, there is no prohibition against “chandelier bidding,” in which an auctioneer begins a sale by pretending he spots bids in a room in order to increase the drama of the bidding process, when, in reality, he is only pointing to a light fixture or some other inanimate object and not real bidders.

Furthermore, all items for sale in New York City are required to have price tags that are conspicuously displayed, but most art galleries consider the practice tacky and ignore the law.

Perhaps the most controversial practice cited in the article is the use of guarantees.  Sometimes prior to an auction, the house will find a third party who is willing to pay a specific price (not disclosed to the public) in order to provide the seller with a guaranteed sale price.

But if the actual bidding exceeds the guarantee, the guarantor gets a cut of any proceeds above the guarantee.  So if a third party commits to a $10 million guarantee, and the bidding reaches $12 million, the third party receives a percentage – perhaps up to 50% –  of the additional $2 million.  And some auction houses allow the guarantor to bid on the work, raising their potential cut of the action.  Indeed, there are situations where the guarantor winds up bidding and buying the work at a higher price, and they still get to share in the financing fee.  The only disclosure to the public is a small symbol in the catalog noting that a work will be sold with a guarantee.   Critics claim that provides the guarantor with an unfair advantage.

Despite some complaints, bills written to curb these practices have gained little traction with New York state legislators.  If prices continue to spiral upward, so will the stakes involved, and it will be interesting to see whether these issues will capture the attention of any regulators.

If you would like more information please write to Mike Bono at .

 

 

WCM Wins Appellate Victory in $25 Million Art Loss

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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.  Wade Clark Mulcahy successfully obtained affirmance of the trial court’s decision that RAI is not entitled to coverage under the policies.

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, recently ruled that the AXA policies contained an 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.

In the decision — which is sure to add another arrow to an insurance carrier’s quiver — the First Department held that as a matter of law, insurance coverage only extends to fortuitous losses, even under all-risk policies.  The Court further held 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.

In context, the Court suggests that even in the absence of an unambiguous exclusion, where the insured’s principal steals from the insured entity, the loss is not fortuitous and therefore not covered.

Also of note, the Court held that RAI’s claim that AXA breached the implied covenant of good faith and fair dealing was duplicative of its breach of contract claim.

Is the Value of Art Going Down?

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Given our fine arts practice, we are tuned in to market value fluctuations since those fluctuations often dictate what an insurer must pay when a covered loss occurs.  If this recent article is to be believed, the value of art is beginning to go down.  If true, this could be good news for insurers.

For more information about this post, please contact Bob Cosgrove at .

 

$18 Million Judgment Entered Against Art Dealer for Theft Claims (NY)

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Plaintiff George Ball is a renowned art collector, and retained R. Scott Cook, his wife Soussan, and Cook Fine Art as his exclusive art advisor and dealer.  The relationship started off well, and between 1997 and 2000, at Cook’s advice Ball purchased about $10 million in paintings, which were held in storage by Cook or at the gallery.    Eventually, the parties entered into an agreement allowing Cook to sell some of Ball’s collection.

In 2011, Cook persuaded Ball to list eleven notable works at auction with Christie’s, afterwards telling Ball that nine of the works had been sold.  However, Cook never listed the works and instead sold them without Ball’s knowledge or consent.  When Cook admitted he had no auction proceeds to deliver, Ball demanded the return of all of his works.  To date, Cook has still not complied.

Ball filed suit in the Southern District of New York.  Cook invoked Fifth Amendment rights against self-incrimination in response to all discovery demands, and Ball eventually moved for summary judgment.  Cook, incarcerated in France and under indictment in New York, advised the Court that he would not oppose the motion.  The Court thus ruled in favor of Ball on breach of contract, conversion, breach of fiduciary duty, fraud, and replevin claims.  The judgment, including interest and punitive damages, is in excess of $18 million.  As often is the case under these circumstances, collectabilty of the judgment is sure to be an issue.

If you would like further information about this post, please write to Mike Bono at .