Art has become both a commodity and an investment – and, as a result, disputes involving art and antiquities have become regular fare in our Courts.  During a recent three-week period, the First Department issued two opinions and Supreme Court, New York County, published three decisions relating to art and antiquities – involving the doctrine of mutual mistake; art looted during World War II; a disputed consignment agreement; misrepresentations as to the sale price of a painting; and artwork left for framing.

Jerome M. Eisenberg, Inc. v. Hall, 2017 NY Slip Op 01437 (App Div. 1st Dept. February 23, 2017)

The appeal addressed two orders of Supreme Court that denied the plaintiff’s motion for summary judgment and granted, in part, defendant’s motion for summary judgment.

The Appellate Division introduced the parties:

Jerome M. Eisenberg buys and sells antiquities. He is a principal of plaintiff Jerome M. Eisenberg, Inc. (Eisenberg, Inc.), and a Qualified Appraiser of the Appraisers Association of America. He is a self-proclaimed expert in classical antiquities with a doctorate in Roman, Egyptian, and Near Eastern Art.

Defendants Maurice E. Hall, Jr. (Hall), Michael Hall Collections, Inc., and Michael Hall Fine Arts, Inc. are art dealers that mainly deal in sixteenth to nineteenth century European art. Hall was a principal and sole shareholder of both Hall entities. Hall asserts that his expertise is in Renaissance art and that he is merely an “amateur collector” of classical antiquities. Eisenberg also stated that he did not believe Hall to be an expert in classical antiquities.

Summarized the facts:

In February 2009, Eisenberg visited Hall’s townhouse, out of which Hall operated his business, and secured a marble head or bust of Faustina II, purported to be ancient Roman, and a bronze warrior statue purported to be Etruscan or Roman era (the Etruscan Warrior). Some months later plaintiff sold the Faustina Bust to the Mougins Museum of Classical Art in France. In or about September 2011, the Mougins Museum informed plaintiff that the Faustina Bust was a fake in that it was modern and not ancient. The museum sent plaintiff a report by Professor R.R.R. Smith of Oxford University and Susan Walker, a curator at the British Museum, who opined that the bust was likely modern.

In April 2011, plaintiff obtained from defendants the Etruscan Warrior and a bronze helmet. Plaintiff subsequently sent photographs of the statue to Dr. Michael Padgett at Princeton University, who opined that the piece had some stylistic inconsistencies. Plaintiff then submitted the statue to Oliver Bobin of the Centre d’Innovation et de Recherche pour l’Analyse et le Marquage for metallographic analysis. Bobin determined that the Etruscan Warrior was actually from the nineteenth or twentieth century and therefore was not ancient.

Addressed the claim of mutual mistake:

We agree with the motion court’s decision that plaintiff is not entitled to summary judgment on its breach of contract claim pursuant to the doctrine of mutual mistake…Although the record reflects that both plaintiff and defendants mistakenly assumed at the time of the transactions that the items at issue were ancient, issues of fact exist as to whether plaintiff bore the risk of that mistake due to its “[c]onscious ignorance” of the items’ authenticity[.]


“Generally, a contract entered into under a mutual mistake of fact is voidable and subject to rescission” because it “does not represent the meeting of the minds’ of the parties”…In order to justify rescission, “[t]he mutual mistake must exist at the time the contract is entered into and must be substantial”[.]

The doctrine of mutual mistake “may not be invoked by a party to avoid the consequences of its own negligence”…Where a party “in the exercise of ordinary care, should have known or could easily have ascertained” the relevant fact…here, whether the items were ancient — that party is deemed to have been “[c]onscious[ly] ignoran[t]” and barred from seeking rescission…or other damages. This is true “[e]ven where a party must go beyond its own efforts in order to ascertain relevant facts (such as obtaining experts’ reports)”[.]

Explicating the “conscious ignorance exception”:

The conscious ignorance exception applies only where a party is aware that his knowledge is limited but decides to contract anyway “in the hope that the facts accord with his wishes,” thus assuming “[t]he risk of the existence of the doubtful fact…as one of the elements of the bargain”[.]

We agree with the dissent that both plaintiff and defendants shared the mistaken belief that the Faustina Bust and the Etruscan Warrior were “ancient.” Where we diverge is that we find that the record at this time does not support a finding that Eisenberg did not consciously ignore his uncertainty as to a crucial fact[.]

Finding questions of fact:

[A]s to whether Eisenberg genuinely believed the bust and statue to be ancient, or was aware that they might not be ancient but decided to assume this risk. Plaintiff presented evidence that Eisenberg is an expert on classical antiquities and a qualified appraiser who generally relies on his own expertise in evaluating works unless he is unsure of a piece’s authenticity. He could thus have reasonably accepted that the items were ancient “based on [a] rational assessment of the source and style of work”…Moreover, as to the Etruscan Warrior, Hall admittedly informed Eisenberg that he believed it to be from the private collection of renowned art collector J. Pierpont Morgan as signified by a painted red number. Eisenberg could have rationally relied on Morgan’s reputation in addition to his own observations[.]

However, plaintiff also admits in its complaint that several other items purchased from defendants later turned out to be inauthentic. This suggests that plaintiff should have been on notice that the items might not be ancient — at least by the time of the later Etruscan Warrior purchase.

The circumstances surrounding the transactions, including the visits to Hall’s townhouse and bedroom, with little or no discussion of the provenance of the pieces, as well as plaintiff’s admission that several other items purchased from defendants turned out to be inauthentic, cast plaintiff’s professed certainty as to the authenticity of the items into doubt and could support a finding that plaintiff was on notice that the items might not be ancient.

The dissent summarized the issues:

It is undisputed that both plaintiff and defendants shared the mistaken belief that the sculptures at issue were “ancient,” and that the purchase prices were based on that assumption. Nevertheless, the majority affirms the denial of plaintiff’s motion for summary judgment on its cause of action for breach of contract on the ground that “issues of fact exist as to whether plaintiff bore the risk of that mistake due to its [c]onscious ignorance’ of the items’ authenticity[.]”

The parties:

Defendants, art dealers specializing in sixteenth to nineteenth century European art, sold a marble bust of Faustina II (the Faustina Bust), thought to be ancient Roman, and a bronze warrior statue (the Etruscan Warrior), thought to be ancient Etruscan or Roman, to plaintiff, a buyer and seller of antiquities. Plaintiff’s principal, Jerome M. Eisenberg, and defendant Maurice E. Hall, who negotiated the sales, both believed that the statues were authentic . However, Eisenberg, a Qualified Appraiser of the Appraisers Association of America and a self-proclaimed expert in classical antiquities with a doctorate in Roman, Egyptian, and Near Eastern Art, relied on his own expertise in purchasing the works, which were later revealed to be modern forgeries.

The questions of mutual mistake:

“Generally, a contract entered into under a mutual mistake of fact is voidable and subject to rescission” because it “does not represent the meeting of the minds’ of the parties”…However, a party’s “negligence, or [c]onscious ignorance,’ regarding the [alleged mistake] bars rescission”…Thus, under the conscious ignorance exception, mutual mistake does not apply where a party is aware that his knowledge is limited but decides to contract anyway, thereby assuming the risk of his mistake…However, “if a party does not make a conscious decision to proceed in the face of insufficient information, the conscious ignorance exception to the mutual mistake doctrine does not apply”[.]

The disagreement with majority:

The majority finds that “[t]he circumstances surrounding the transactions, including the visits to Hall’s townhouse and bedroom, with little or no discussion of the provenance of the pieces, as well as plaintiff’s admission that several other items purchased from defendants turned out to be inauthentic, cast plaintiff’s professed certainty as to the authenticity of the items into doubt and could support a finding that plaintiff was on notice that the items might not be ancient.” I do not agree.

And the record:

The record establishes that defendants presented the Faustina Bust and Etruscan Warrior to plaintiff as ancient items. As the majority concedes, Eisenberg could have reasonably accepted that the items were ancient based on his own expertise and a “rational assessment of the source and style of work”…Moreover, as to the Etruscan Warrior, Hall admittedly informed Eisenberg that he believed it to be from the private collection of renowned art collector J. Pierpont Morgan. As the majority acknowledges, “Eisenberg could have rationally relied on Morgan’s reputation in addition to his own observations.” While Hall and Eisenberg disagreed whether that statue was Etruscan or Roman, the dispositive fact is that they both believed it to be ancient, and that there was a rational basis for that belief.

There is no evidence demonstrating that Eisenberg did not genuinely believe that the items were ancient or that he was “uncertain as to a crucial fact” regarding their authenticity following his inspections…That plaintiff purchased several items in the past that were later determined to be fakes does not establish conscious disregard of any facts pointing to the inauthenticity of the sculptures at issue. Plaintiff’s money was refunded in each of those cases and the particular circumstances of those transactions and the discovery of the fakes is unclear. Moreover, given that those transactions were rescinded and did not result in a financial loss, they should not form the basis of imposing a heightened duty of inquiry on plaintiff.

Whether Hall affirmatively offered the items for sale or made any affirmative representations is of no consequence. Plaintiff does not premise its breach of contract claim on the breach of a contractual warranty. Rather, the claim is based on the premise that there was no meeting of the minds because the parties were mutually mistaken about a material fact. The basis of the bargain and the statues’ value lay in the items being ancient, which proved to be untrue.

Even if Eisenberg is the more credentialed expert in classical antiquities among the two, Hall is an established dealer in fine arts who sold those items. In any event, “there is no authority for the proposition…that in a contract between an expert and non-expert, rescission based on mutual mistake is unavailable to the expert”[.]

Concluding that:  “I would grant plaintiff summary judgment rescinding the sales.”

Matter of Stettiner, 2017 NY Slip Op 01168 (App. Div. 1st Dept. February 14, 2017)

Petitioner appealed from the order of the Surrogate’s Court “which dismissed the petition to revoke ancillary letters of administration issued to respondent George W. Gowen.”

The First Department described the question presented:

The issue before this Court is whether petitioner International Art Center, S.A., which purchased the painting in 1996 for $3.2 million, has standing to challenge the ancillary letters of administration issued to the heir’s representative for purposes of commencing litigation to recover the painting.

The historical background:

The genesis of this litigation was in 1939, when, with the Nazi invasion imminent, decedent Oscar Stettiner, a Jewish art collector, abruptly fled Paris, leaving his art collection behind. His art collection was later sold by the Nazis, including an early twentieth century painting by the Italian artist Amedeo Modigliani, which Stettiner’s heir seeks to recover.

*     *     *

In the immediate aftermath of World War II, the United States and its allies took on the task of locating and returning the many great works of art systematically looted by the Nazis. While millions of works were recovered and returned to the rightful owners, individual Holocaust victims and their heirs have struggled for decades to obtain restitution.

The efforts to recover these treasures have been recently popularized in movies including 2014’s “Monuments Men,” and 2015’s “Woman in Gold,” which chronicled Maria Altmann’s pursuit of her family’s paintings looted in Austria, including Gustav Klimt’s “Portrait of Adele” (1907), of which Altmann won restitution following litigation that reached the United States Supreme Court[.]

While this great theft may have taken place more than 70 years ago, a resolution was not possible until a combination of scholarship and technology allowed for the creation of databases compiling lists of missing works, and until nations agreed to international guidelines on art restitution such as those laid out in the 1998 Washington Principles on Nazi-Confiscated Art. Even at the tail end of 2016, the United States Congress felt it necessary to pass additional legislation to aid victims of Holocaust-era persecution and their heirs to recover works of art confiscated or misappropriated by the Nazis, and to ensure that claims to artwork and other property stolen or misappropriated by the Nazis are not unfairly barred by statutes of limitations but are resolved in a just and fair manner. This legislation became law on December 16, 2016[.]

The subject painting:

The painting at issue is known as “Seated Man With a Cane” (1918) and is currently owned by petitioner. It is alleged to have been confiscated by the Nazis from decedent, who resided in Paris in the 1930s.

The contentions of respondent:

Respondents, the Estate of Oscar Stettiner (Estate), Philippe Maestracci, and George W. Gowen, as Limited Ancilliary Administrator of the Estate of Oscar Stettiner, contend that in 1930 decedent Oscar Stettiner purchased a painting, which he subsequently loaned to the 1930 Venice Biennale, a world-famous art exhibition. The painting was listed as number 35 in the exhibition, and, according to respondents, a label on the back of the painting by the Venice Biennale establishes it is the same painting as the one at issue in this case.

In 1939, before the Nazi invasion, decedent fled Paris to his home in what became the unoccupied zone of France. In 1941, the Nazis appointed a temporary administrator to sell Jewish property and turn the proceeds over to the Third Reich. On July 3, 1944, the subject painting was sold by the temporary administrator to J. Van der Klip.

In 1946, decedent sought the return of his painting in a French court and received an emergency summons voiding the forced sale and directing Van der Klip to return the painting to him. Van der Klip claimed that he did not know the whereabouts of the painting, having sold it to an unknown American officer in a café. Respondents contend that the painting was secreted by the Van der Klip family for 52 years.

Decedent died intestate in France on February 25, 1948. Respondent Philippe Maestracci, a French domiciliary, is decedent’s only surviving grandson and sole heir.

In 1996, Van der Klip’s only surviving daughter and her nephew consigned a painting bearing the same title and artist in issue to Christie’s in London, for auction on June 25, 1996. The catalogue for the auction stated that the painting was listed as number 16 at the 1930 Venice Biennale. Respondents contend that the artwork designated number 16 was not listed as belonging to decedent.

On June 25, 1996, petitioner IAC, a Panamanian entity, allegedly formed and controlled by the family of Hillel (Helly) Nahmad, owner of Helly Nahmad Gallery, Inc., purchased a painting for $3.2 million. Nahmad was a New York resident, and the Gallery, a New York corporation, was located in Manhattan and abroad. Respondents allege that the painting was the same painting that was stolen from decedent. In 2008, it was valued by Sotheby’s at between $18 and $25 million.

The painting was exhibited at the Gallery’s London location in 1998; at an art museum in Switzerland in 1999; at the Gallery in New York in 2005; and at the Royal Academy of Arts in London in 2006, “courtesy of Helly Nahmad.”

In 2008, IAC consigned the painting to Sotheby’s for sale in New York. The catalogue for the sale noted under “provenance” decedent’s “possible” prior ownership and stated that the painting was exhibited as number 35 at the 1930 Venice Biennale.

There were no bids for the painting, and it was returned to IAC’s storage facility in Switzerland in December 2008, where it remained until April 2016. Respondents contend that the painting was transported to Switzerland after Nahmad learned from Sotheby’s that it had been stolen from decedent and potential bidders were concerned about title. It has been reported that in April 2016 Swiss authorities confiscated the painting as part of a criminal investigation into the ownership of the painting.

The petition for ancillary letters of administration:

On March 7, 2013, respondent George W. Gowen, an attorney for Maestracci, and a New York resident, petitioned Surrogate’s Court, New York County, for ancillary letters of administration to commence litigation in Supreme Court, New York County, for return of the painting, which was allegedly under the control of the Gallery, Nahmad, and David Nahmad (agent for the gallery), New York residents (collectively, Nahmads), and IAC, a foreign entity transacting business in New York. The petition stated that there was no personal property of decedent in New York, and stated that the sole purpose of seeking appointment of an administrator was to commence a legal action by a New York resident against foreign parties.

The threshold jurisdictional issues:

To establish jurisdiction pursuant to SCPA 206, Gowen provided an affidavit from Edward W. Greason, Esq., an associate at the firm representing Maestracci. Greason recounted the history of the painting and stated that in order to commence a proceeding to recover it, appointment of a fiduciary for the Estate was necessary to act as the proper party in interest. Because Maestracci was not an American citizen, he did not qualify, so with Maestracci’s consent, Gowen was seeking to act as administrator of decedent’s ancillary New York estate.

In a second affidavit, Greason stated that pursuant to SCPA 103(44), a “chose in action” was defined as property, and the Estate had the right to commence an action in New York to recover the painting because the Nahmads were New York residents and the Gallery was a New York corporation. Greason also stated that the painting was believed to be in New York in the possession of the Nahmads.

The prior proceedings:

On June 27, 2013, the Surrogate’s Court, New York County, issued limited ancillary letters of administration to Gowen. Thereafter, in 2014, respondents commenced an action in Supreme Court, New York County, against IAC and the Nahmads. Jurisdiction over IAC was based on allegations that it did business at the same office in Manhattan as the Gallery, purposely transacts business in New York, and that it was an offshore entity used by the Nahmad family as an instrument to hold their personal family interests in art, most of which were located in Switzerland. The complaint requested a declaratory judgment that Maestracci was the owner of the painting, and asserted claims for conversion and replevin.

The petition to revoke letters:

On March 2, 2015, IAC filed a petition before the Surrogate’s Court seeking to revoke the limited ancillary letters of administration issued to Gowen. Initially, IAC alleged that it had standing to seek the relief because it was a person “interested” in the Estate as the owner of the painting and a defendant in the action. The petition also alleged that resolution of whether the Surrogate’s Court had subject matter jurisdiction to issue the ancillary letters might moot the action, and claimed the issuance of the letters was based on material misstatements in that respondents falsely claimed that the Estate’s sole asset, the painting, was located in New York, when it was returned to Switzerland in 2008.

The arguments in support of the petition:

In support of the petition, IAC submitted affidavits of Adelino Semedo, an officer of a storage facility in Switzerland, who detailed the location of the painting since it was received at the facility in Switzerland from Christie’s London on March 21, 1997. In particular, he stated that the painting was shipped to Sotheby’s New York on September 18, 2008, and returned to the facility on December 18, 2008, where it remained.

IAC also submitted affidavits of Harco Van Den Oever, and Julie Kim, International Business Director, and acting Director, respectively, for the Impressionist and Modern Departments of Christie’s affiliates globally, stating that IAC purchased the painting at an auction on June 25, 1996. Further, IAC provided an affidavit of Daisy Edelson, senior vice president and business director of Sotheby’s Impressionist and Modern Art Departments in New York, stating that the painting was consigned for auction by IAC, not Gallery and was returned to Switzerland on December 4, 2008.

IAC argued that the Surrogate’s Court lacked subject matter jurisdiction for the issuance of the ancillary letters. IAC also maintained that factual misrepresentations were made to secure the letters in that the painting was not in New York, and was purchased by IAC, not the Nahmads.

The contentions in opposition to the petition:

Respondents responded that IAC’s wrongful refusal to return the painting was a tortious act amenable to suit in New York under CPLR 302 and SCPA 210(1) and (2)(a). They asserted that SCPA 103(44) and 2103(2) provided that a “chose in action” was an asset of an estate. Moreover, they claimed that IAC lacked standing as an interested person under SCPA 103(39) because it was not a beneficiary of the Estate or a trustee in bankruptcy or receiver, and that IAC’s interest was in the painting and the action, not in the Estate. In addition, they argued that there was no other forum with jurisdiction over all parties, and equity favored a prompt resolution of the Estate’s claims. They noted that IAC had avoided discovery and that Maestracci was over 70 years of age and contended that IAC was seeking to prolong the proceedings. Finally, they claimed they did not make material misstatements to the court to obtain the letters.

The decision of the Court below:

Surrogate’s Court dismissed IAC’s petition, finding that IAC lacked standing to bring the application to revoke the limited ancillary letters issued to Gowen. In addition, the court concluded that the ancillary letters were not obtained by misrepresentations and that it had jurisdiction over estates of nondomiciliaries with a claim in New York under SCPA 2103(2)[.]

Affirming the Surrogate’s Court and concluding that:

In order to seek revocation of ancillary letters of administration based on any of the grounds listed in SCPA 711, one must be “a co-fiduciary, creditor, person interested, any person on behalf of an infant or any surety on a bond of a fiduciary.” While IAC maintains it qualifies as a “person interested,” that term is defined as “[a]ny person entitled or allegedly entitled to share as beneficiary in the estate or the trustee in bankruptcy or receiver of such person” (SCPA 103 [39]). However, IAC is neither a beneficiary nor a creditor of the Estate, and provides no other basis for a conclusion that it is a “person interested.” Moreover, a defendant in an action brought by an estate is not an interested person…Accordingly, IAC does not have standing to seek revocation of the letters.

Nevertheless, SCPA 719 permits the court to revoke letters when it becomes aware of facts supporting grounds for revocation. In this case, IAC alleges that Gowen obtained his letters by fraud. In particular, IAC claims that Gowen procured the letters by falsely claiming that the painting was located in New York when it was in fact located in Switzerland. This allegation stems from a statement in one affidavit that indicated a belief that the painting was in New York. However, the petition for the letters explicitly stated that the Estate had no property in New York, other than the right to commence an action. In other words, the petition did not assert that the painting was in New York, and there is no reason to believe that this assertion in one affidavit played a part in the court’s determination to issue the ancillary letters.

IAC also challenges whether the Surrogate’s Court had jurisdiction to entertain this matter. SCPA 206(1) provides that the Surrogate’s Court has jurisdiction over the estate of any nondomiciliary decedent who leaves property in the state. The Surrogate’s Court should decline to exercise jurisdiction only when the controversy in no way affects the affairs of a decedent or the administration of the estate[.]

Significantly, although the authority of the Surrogate’s Court over a nondomiciliary’s estate in an ancillary proceeding is generally limited to estate assets within New York…property includes a “chose in action,” e.g. a cause of action in New York[.]

Accordingly, contrary to IAC’s contention, SCPA 206(1) does not require the physical presence of the subject property in New York at the time the proceeding for ancillary letters was commenced. It is sufficient that the Estate had a valid “chose in action” against two New York domiciliaries (the Nahmads), a New York corporation (the Gallery), and IAC, a foreign entity alleged to be owned and controlled by New York residents and doing business in New York.

*     *     *

Nor is there merit to IAC’s personal jurisdiction claim. Initially, Surrogate’s Court did not require personal jurisdiction over IAC in order to determine whether or not to revoke the grant of ancillary letters of administration since ICA was not a respondent in that proceeding. In any event, a court may exercise personal jurisdiction over any nondomiciliary who, in person or through an agent, transacts any business within the state or contracts anywhere to supply goods or services in the state or commits a tortious act within the state or regularly does or solicits business or engages in any other persistent course of conduct (CPLR 302[a][1] and [2]). The commission of some single or occasional acts of an agent in a state may be enough to subject a corporation to specific jurisdiction in that state with respect to suits relating to that in-state activity[.]

In this case, personal jurisdiction was acquired based on IAC’s admitted agreement with Sotheby’s to act as its agent to sell the painting in New York in 2008. Further, personal jurisdiction over IAC may be based on respondents’ allegations that IAC transacted business in New York through the Nahmads at the Gallery’s office in Manhattan.

Shchukin House Ou v. Iseev, 2017 NY Slip Op 30421(U) [Sup. Ct. N.Y. Co. March 2, 2017]

In this action “Plaintiff Shchukin House Ou…brought this action against Defendant Rustam Iseev…to recover damages in excess of $60 Million, the return of five works of art allegedly provided to Defendant pursuant to a proposed consignment agreement and an accounting for Defendant’s alleged unlawful conversion, breach of fiduciary duty, breach of a proposed contract, unjust enrichment and prima facie tort.

Supreme Court described the pending motion:

Plaintiff now moves for summary judgment in its favor as against Defendant and for an order, pursuant to CPLR 2701, requiring Defendant Rustam Iseev to return to Plaintiff the five works of art or in the alternative requiring Defendant Rustam Iseev to post a bond; a default judgment and/or assessment of damages for $60 Million, costs and attorney’s fees and reasonable attorney’s fees and sanctions for “frivolous conduct.”

The prior proceedings:

Plaintiff has previously filed multiple orders to show cause seeking court orders requiring Defendant to return the works of art, but has been unsuccessful in obtaining such court order.  Now, Plaintiff argues in substance that it is entitled to summary judgment in its favor because it has demonstrated ownership of the works of art, a right to possess the works of art, that Defendant has no standing to claim possession of the works of art and that Defendants improperly continue to refuse to return the works of art.

The contentions of the parties:

Defendant Rustam Iseev opposes Plaintiff’s summary judgment motion and argues in substance that Plaintiff fails to establish its entitlement to judgment in its favor, fails to demonstrate ownership or a superior right to possess the works of art, there was no contractual relationship as the proposed consignment agreement between the parties was never signed and Defendant owes no fiduciary duty to Plaintiff.

Concluding that:

Upon considering the admissible evidence submitted, the court finds that Plaintiff failed to demonstrate a prima facie showing its entitlement to judgment as a matter of law or the absence of any material issues of fact.  To the contrary, Defendant has demonstrated sufficient facts to contradict Plaintiff’s arguments regarding Plaintiff’s alleged ownership and entitlement to possession of the wor0+ks of art and for any of Plaintiff’s requested relief.  As such, Plaintiff’s motion or summary judgment is denied in its entirety with prejudice.

Franklin v. Pegasus Credit Co., LLC, 2017 NY Slip Op 30312(U) [Sup. Ct. N.Y. Co. February 16, 2017]

Supreme Court addressed plaintiff’s motion for injunctive relief.

The Court summarized the facts:

On October 13, 2016, plaintiff, an art dealer, entered into an Arranger Agreement with Modern Art Services, LLC…On the same date plaintiff entered into a Loan and Security Agreement for $1,100,000.00, with Pegasus Credit Company, LLC…as the lender and with MAS, using artwork as collateral. Plaintiff entered into the Loan and Security Agreement as a means of obtaining more favorable interest rates, refinancing, and paying off two pre-existing loans held by Borro L 1 Inc. and New York Loan Company. Ian S. Peck, the president of Pegasus and MAS, signed the agreements on behalf of both entities…Art Capital Group LLC, an entity co-owned by Ian S. Peck, was used by Pegasus and MAS to store, maintain and hold the pledged artworks identified as collateral.

Plaintiff provided two pieces of artwork as the collateral for the loan and alleges that the remaining additional collateral held on the pre-existing loans, upon payoff, was to be released and pledged to defendants. Plaintiff alleges that defendants advanced only $110,151.00, totaling approximately 10% of the secured loan, and never fully funded the remaining amount. Plaintiff also alleges that the written Loan and Security Agreement never stated that the funding would be in tranches, or that full funding first required the entire collateral pool to be physically delivered to the defendants.

Defendants allege that Pegasus advanced plaintiff $142,167.00, but because they paid for additional interest, fees and expenses that required payment before the release of funds, the amount he actually received was $110,300.00. Defendants claim the pre-existing loan held by New York Loan Company had a total payoff of $91,570.00 and plaintiff sought an additional $18,500.00, all of which was paid by October 27, 2016. They also claim that plaintiff has retained at least two pieces of the artwork from the pre-existing loan that was to be used as collateral after the payout. On November 1, 2016, Pegasus filed UCC-1 Financing Statements with the New York Department of State perfecting security interests in the collateral pool, including all of the artwork.

Proceedings in Supreme Court:

On January 20, 2017, plaintiff commenced this action by Summons with Notice, alleging the nature of this action is for promissory estoppel, unjust enrichment and a declaratory judgment regarding the parties respective rights and obligations under the secured loan agreement. On February 7, 2017, defendants…filed a “Notice of Appearance and Counterclaims,” the counterclaims were for breach of contract and replevin. On February 8, 2017…plaintiff filed a Complaint, asserting causes of action for fraud, promissory estoppel, unjust enrichment, conversion, tortious interference with business relations and seeking a declaratory judgment, pursuant to CPLR § 3001, that the secured loan is invalid and defendants have no rights to the artworks identified as collateral.

The forum selection issue:

Defendants argue that this action should be dismissed because pursuant to the forum selection clause in the agreements plaintiff is required to commence his action in the State of Delaware.

The Loan and Security Agreement signed by plaintiff and Ian Peck on behalf of Pegasus and MAS, in Section 9.3 titled: “Governing Law,” states in relevant part:

(a)        The Loan Documents shall be construed and enforced in accordance with the laws of the State of Delaware, without regard to principles of conflict of laws.

(b)        Any judicial proceeding by the Borrower against the lender involving directly or indirectly, any matter or claim in any way arising out of, related to or connected with the Loan Documents, shall be brought only in a court of competent jurisdiction sitting in the State of Delaware. Borrower accepts, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with the Loan Documents.

(c)        Nothing herein shall affect the right to serve process in any manner permitted by law or shall limit the right of the Lender to bring proceedings against Borrower in the courts of any other jurisdiction. Borrower waives any objection to jurisdiction and venue of any action instituted under the Loan Documents and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens[.]

Paragraph 17 of the Arranger Agreement, titled “Consent to Jurisdiction: Venue” states the same jurisdictional provisions, permitting MAS to commence a lawsuit “in any jurisdiction” while restricting the plaintiff to “any state or federal court of competent jurisdiction sitting in the State of Delaware, as appropriate”.

As to forum selecting clauses:

Forum selection clauses are deemed prima facie valid. The enforcement of contractual forum selection clauses is an established policy of the New York Courts. The forum selection clauses are not to be set aside unless it is demonstrated that enforcement is, “unreasonable and unjust or that the clause is invalid because of fraud or overreaching, such that a trial in the contractual forum would be so gravely difficult and inconvenient that the challenging party would, for all practical purposes be deprived of his or her day in Court”…A distinction is made between mandatory provisions binding the parties to a forum and permissive provisions that amount to “service of suit clauses” that do not bar actions in a forum of choice, or consideration of a forum non conveniens application in the selected forum. A contract clause conferring jurisdiction which provides a guaranteed forum may not deprive the right to sue in another jurisdiction as long as personal jurisdiction is obtained over the defendant[.]

The forum selection clauses stated in the Loan and Security Agreement and the Arranger Agreement are permissive as to the lender, allowing the maintenance of actions “in the Courts of any other jurisdiction.” Although the clauses applying to plaintiff are stated as mandatory, they are capable of being interpreted as permissive as long as personal jurisdiction can be obtained over the defendants. Defendants have conceded they reside and do business in New York, and the agreements and artwork were entered into in New York, establishing that jurisdiction can be obtained over the defendants[.]

The request for injunctive relief:

Plaintiff’s motion pursuant to CPLR §§ 6301 and 6313 seeks injunctive relief to restrain the defendants from transferring, selling or otherwise disposing of any of the artwork associated with the secured loan and currently in the defendants possession.

Defendants oppose plaintiff’s motion and…seek injunctive relief requiring the immediate marshaling and turnover of missing collateral artwork from plaintiff, and a restraining order preventing plaintiff from transferring, selling or in any way alienating any of the collateral associated with the secured loan and identified in the November 1, 2016 UCC-1 Financing Statements filed with the New York Department of State[.]

A movant seeking a stay or injunction, is required to show, “(1) the likelihood of ultimate success on the merits; (2) irreparable injury to him absent granting of the preliminary injunction; and (3) that a balancing of the equities favors his position”…An injunction maintains the status quo until a full hearing can be had on the merits[.]

Concluding that:

Plaintiff’s arguments that he has the likelihood of success on the merits because defendants do not intend to fully fund the loan and irreparable injury if defendants liquidate the artwork in their possession because it is “one of a kind,” have merit. It is plaintiff’s contention that the artwork in defendants’ possession is valued at an amount that would be more than sufficient to secure the advance, interest and fees. Plaintiff has established that the balancing of the equities are in his favor because liquidation results in his losing the artwork forever, and injunctive relief is needed to maintain the status quo pending a final determination.

*     *     *

Defendants seek injunctive relief arguing that there is a high likelihood of success on the counterclaims for breach of contract and replevin and that the balance of the equities are in their favor because of loss of the bargained for security and contract terms. Defendants allege they will be irreparably injured if a financially unstable plaintiff declares bankruptcy. Defendants have established entitlement to a restraining order preventing plaintiff from transferring, selling or in any way alienating any of the collateral associated with the secured loan and identified in the November 1, 2016 UCC-1 Financing Statement, pending the resolution of this action and for purposes of maintaining the status quo. Defendants have not established entitlement to the injunctive relief requiring the immediate marshaling and turnover of missing collateral artwork from plaintiff prior to a resolution of this action.

Schulhof v. Jacobs, 2017 NY Slip Op 50264(U) [Sup. Ct. N.Y. Co. February 27, 2017]

Plaintiff Schulhof moved for summary judgment against defendant Jacobs.

The Court summarized the background:

According to the Complaint, Mr. Schulhof, a resident of the State of New York, is the executor of the estate of his deceased mother, Mrs. Schulhof…Jacobs, a resident of the State of New York, works as a private curator and art consultant, often providing art advice to potential buyers and sellers of modern art[.]

From 1998 until Mrs. Schulhof’s passing on February 23, 2012, Jacobs has worked as a curator and advisor for the art collection owned by Mrs. Schulhof…During this time, Jacobs also ran her own business, Lisa Jacobs Fine Art…where she bought and sold art and worked as a curator and advisor[.]

On October 25, 2011, Mr. Schulhof and Jacobs entered into a written agreement…wherein Jacobs was to locate a buyer for a painting in the Schulhof Collection entitled “Future Sciences Versus the Man” by Jean-Michel Basquiat…for a minimum purchase price of $6 million in exchange for a $50,000 fee. Mr. Schulhof maintains that he entered into the October Agreement on behalf of Mrs. Schulhof in his capacity as executor[.]

Pursuant to the October Agreement, Jacobs would receive a $50,000 fee upon commission of a final sale. The October Agreement provided that Jacobs was “not to accept any fee from the purchaser, in cash or in kind”…The October Agreement also provided that Defendant was to contact Mr. Schulhof prior to approaching any prospective purchaser…Further, according to the October 2011 Agreement, Jacobs was prohibited from presenting or seeking purchase offers below $6 million without written confirmation of a lower price[.]

Jacobs alleges that prior to the October Agreement, she and Mrs. Schulhof had entered into a separate agreement that entitled her to receive a “buyer’s premium.” However, Jacobs has not set forth any admissible concrete evidence supporting the existence of this agreement.

On November 1, 2011, Jacobs met with Amy Wolf…an art dealer, to discuss the sale of the Work. Jacobs informed Wolf that the asking price for the Work was $6.5 million…By November 2, 2011, Jacobs and Wolf reached an agreement for the sale of the Work for $6.5 million…According to Wolf’s deposition testimony, Jacobs presented $6.5 million as the asking price, and Wolf readily accepted it[.]

Shortly thereafter, on November 4, 2011, Wolf invited Jacobs to send her an invoice for the Work. The next day, on November 5, 2011, Jacobs informed Mr. Schulhof that she had a potential purchaser for the Work.

On November 7, 2011, Jacobs informed Mr. Schulhof by email that she “was able to get the [buyer] up to 5.5 million. We have a firm deal”…As a result, Mr. Schulhof agreed to accept $5.5 million as the purchase price for the Work. Jacobs suggested that the transaction be structured as a two-step process, stating that the buyer wanted to remain anonymous. Honoring such request, Mr. Schulhof sold the Work to Jacobs for $5,450,000, and Jacobs was to immediately resell it to Wolf for a purported $5.5 million.

On November 11, 2011, Jacobs executed a contract with Wolf, to sell Wolf the Work for $6,500,000…Section 2.1 of the November Agreement provides that the agent has “all requisite power and authority to enter into this Agreement and consummate the transactions contemplated hereby”…Additionally, Section 2.2 of the November Agreement provides, in relevant part, that “the [a]gent on behalf of the Seller has full right, authority, power and capacity to execute and deliver this Agreement”[.]

After receiving the $6.5 million purchase price from Wolf, Jacobs wired $5,450,000 to Mr. Schulhof on November 16, 2011…It is undisputed that Mr. Schulhof was never informed that Jacobs received a profit of $1 million in connection with the sale of the Work or that the buyer had accepted the $6.5 million offer[.]

Approximately one year later, Mr. Schulhof discovered that the purchase price for the Work was actually $6.5 million and that Jacobs kept not only her agreed $50,000 but also an additional $1 million from the sale of the Work.

The pending proceedings:

On August 26, 2013, Mr. Schulhof commenced the instant action asserting causes of action for breach of fiduciary duty, fraud, breach of contract, restitution, and unjust enrichment. The complaint seeks compensatory damages in excess of $1 million as well as punitive damages.

Schulhof’s motion for summary judgment:

Mr. Schulhof moved for summary judgment on the grounds that there are no genuine issues of material fact as to his fraud, breach of contract, breach of fiduciary duty, restitution, and unjust enrichment claims due to Jacob’s misrepresentation that the purchase price was $5.5 million, thereby allowing her to wrongfully obtain an additional $1 million in commission.

Jacobs’ opposition and cross-motion:

In opposition, Jacobs cross-moved for summary judgment to dismiss the complaint, alleging that Mr. Schulhof failed to comply with provisions of the power of attorney (“POA”) and New York’s General Obligations Law § 5-1507 and that no fiduciary relationship exists between Jacobs and Mrs. Schulhof.

Concluding that:

The record is clear that Jacobs misrepresented that the buyer was only willing to pay $5.5 million for the Work with knowledge that the buyer was actually willing and ready to pay $6.5 million. Mr. Schulhof has sufficiently established that Jacobs made such representations to induce him into accepting the $5.5 million purchase price, and Mr. Schulhof reasonably relied on such representation in deciding to sell the Work. This Court also finds that there is no triable issue of fact as to the damages, as it is clear that Mr. Schulhof was damaged in the amount of approximately $1 million due to Jacobs’ fraud. As such, Jacobs’s failure to disclose said fact constitutes actionable fraud, entitling Mr. Schulhof to summary judgment in his favor.

The Court also finds that Jacobs misrepresented that the purchase price was for $5.5 million and that she had gotten the confidential buyer “up to” $5.5 million, thereby leading Mr. Schulhof to reasonably believe that Jacobs had pushed the undisclosed buyer as high as he could…Given Jacobs and Mrs. Schulhof’s longstanding business relationship combined with the terms of the October Agreement, Jacobs owed a fiduciary duty to Mr. Schulhof as executor, thereby obligating her to disclose the $6.5 million offer prior to entering into the November Agreement[.]

Furthermore, Jacob’s actions and misrepresentations were in direct breach of the October Agreement, which obligated Jacobs to notify Mr. Schulhof of all purchase offers above $6 million and prohibited Jacobs from receiving a fee of any kind from the purchaser, which would include the additional $1 million in commission she fraudulently obtained…Jacobs’ failure to abide by the terms of the October Agreement and the resulting damages of $1 million warrants the conclusion that Mr. Schulhof has sufficiently established his breach of contract claim[.]

As to Mr. Schulhof’s restitution claim, Jacobs, as a faithless servant, must account to Mr. Schulhof for the $1 million of secret profits earned for the sale of the Work…Additionally, Jacobs’ disloyalty to Mr. Schulhof causes her to forfeit the $50,000 in compensation earned for the sale of the Work[.]

Ginley v. J. Pocker & Son, Inc., 2017 NY Slip Op 30454(U) [Sup. Ct. N.Y. Co. March 6, 2017]

This action arose “out of artwork that plaintiff purportedly left with defendant, a custom framing business located at 135 East 63rd Street, New York, New York. Plaintiff maintains that she left these items with defendant on April 10, 2013 in order to have the art framed. Plaintiff contends that these items are very valuable with at least two of the pieces — Peter Gee screen prints — valued at $35,000 each.”

Supreme Court described the assertions of the parties:

Plaintiff asserts that she has demanded her artwork back and that defendant has refused to return the items. Plaintiff contends that the artwork is missing and seeks at least $100,000 in damages.”

The pending motion:

Defendant moves to dismiss on the basis that the documentary evidence shows that plaintiff’s action is time-barred. Defendant claims that plaintiff brought the artwork to defendant on October 3, 2011 and that under either date (October 3, 2011 or April 10, 2013), this lawsuit was not brought within the three-year statute of limitations period.

The contention with respect to the statute of limitations:

Defendant insists that under CPLR 214(3) and (4) plaintiff had three years to commence an action to recover chattel or for damages for injury to property. Plaintiff concludes, therefore, that plaintiff’s claims for negligence (first cause of action) and conversion (second cause of action) must be dismissed. Defendant contends that plaintiff’s third cause of action for a declaratory judgment that defendant must deliver and return the artwork must also be dismissed on statute of limitations grounds.

In opposition, plaintiff claims that the statute of limitations did not begin to run until plaintiff made a demand for the return of the artwork and the demand was refused. Plaintiff contends, in her affidavit in opposition, that she had a medical emergency in February 2014, which delayed the completion of the custom framing and that when she reached out to defendant, they informed her that they could not locate her artwork. Plaintiff insists that after more discussions in which defendant tried to locate the artwork, plaintiff was informed by defendant that the artwork had been picked up or returned. Plaintiff then claims she demanded the return of her artwork in September 2015.

In reply, defendant claims that plaintiff’s complaint does not state anything about the date of plaintiff’s demand for return of the artwork. Defendant insists that plaintiff’s delay in demanding the artwork was unreasonable because it was made nearly four years after she first delivered the artwork to defendant.

The burden of proof as to the statute of limitations:

“On a motion to dismiss a cause of action pursuant to CPLR 3211(a)(5) on the ground that it is barred by the statute of limitations, a defendant bears the initial burden of establishing, prima facie, that the time in which to sue has expired. To meet its burden, the defendant must establish, inter alia, when the plaintiff’s cause of action accrued”[.]

The applicable law with respect to a chattel bailment:

“In a chattel bailment of indefinite duration, the Statute of Limitations does not begin to run against a bailee in lawful possession until the bailor makes a demand for the chattel’s return and the demand is refused”[.]

Noting that:

“[W]hen the proceeding has been commenced in the form of a declaratory judgment action, for which no specific Statute of Limitations is prescribed, `it is necessary to examine the substance of that action to identify the relationship out of which the claim arises and the relief sought’ in order to resolve which Statute of Limitations is applicable”[.]

And concluding that:

The instant motion turns on paragraph 7 of plaintiff’s complaint, which states that plaintiff demanded the return of her artwork and defendant refused. Although the complaint does not state when this demand occurred, the inclusion of this paragraph (taken together with the rest of the complaint) put defendant on notice that plaintiff is alleging a bailment of indefinite duration.  Allegations based on this legal theory accrue when the demand for the return of the chattel is made (and last three years).

Here, defendant fails to identify when the demand was made and, therefore, defendant did not meet its burden to show when plaintiff’s causes of action accrued. Defendant’s alleged documentary evidence, the framing estimate, only purports to show that an estimate of the artwork was completed in October 2011…This exhibit also contains an unexplained notation that the quote was cancelled. In any event, this document does not establish the date of plaintiff’s demand for the return of her artwork.

Defendant’s memorandum of law characterizes plaintiff’s causes of action as the `taking’ of chattel in support of its theory that the three-year statute of limitations began to run from the date plaintiff brought in the artwork. But that contention is not supported in plaintiff’s complaint. Defendant appears to acknowledge this point in its reply, which focuses on whether plaintiff’s delay in requesting the return of her artwork was reasonable.

[P]laintiff’s affidavit in opposition raises an issue of fact regarding the date the statute of limitations began to accrue…Plaintiff claims that she demanded the return of the artwork in September 2015, which would make plaintiff’s causes of action timely.

Lesson learned:

“Every lawsuit results from somebody doing something wrong.  If everybody did right, we wouldn’t need laws.”

Alan Dershowitz

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