Fraud Claim Against Wildenstein Survives Motion to Dismiss
 
This spring, we wrote about the initiation of a lawsuit against venerable gallery Wildenstein & Co., over the 1985 sale of a purported Bonnard work that the buyer has since come to believe is inauthentic.  Now, a federal court has refused to dismiss the plaintiff’s lone claim for fraud, paving the way for the case to move into the discovery phase. 
 
In an October decision, the Southern District of New York ruled that the plaintiff, a trust entity affiliated with prominent art collector Neil Wallace, had sufficiently alleged the elements of a fraud claim. 
 
One of the key components of fraud is that a plaintiff must plead facts that, if true, show that his reliance on the defendant’s representations was reasonable.  In assessing reasonable reliance, courts must consider the “entire context” of the transaction, including the parties’ sophistication; whether a particular matter was “peculiarly within a defendant’s knowledge,” meaning that the plaintiff had no way of independently obtaining the information; and whether the plaintiff was aware of circumstances that might indicate a representation might be false but failed to make further inquiry, such that reliance would be unreasonable. 
 
Here, Wildenstein had argued that Wallace, a sophisticated collector, could have done his own diligence, including consulting the Bonnard catalogue raisonne himself, and his failure to do so made his reliance on Wildenstein’s representations unreasonable.  But the court rejected this argument, noting that the complaint alleges that Wildenstein made its representation at a time when Wildenstein allegedly knew the work was not in the Bonnard catalogue, while Wallace was unaware that there even was a Bonnard catalogue in existence, and had no other reason to doubt Wildenstein – on those allegations, “there was nothing unreasonable about his relying on Wildenstein’s representations without consulting it.”  The court noted that it might turn out that Wallace knew or should have known of the catalogue; but those issues must await discovery. 
 
Likewise, Wildenstein had argued that the complaint did not adequately allege that it had intended to defraud Wallace.  The court again disagreed, noting that Wildenstein’s status as a renowned gallery with expertise in Bonnard would tend to show that it was aware the work was not in the catalogue and thus was likely inauthentic.  The court acknowledged the gallery’s counterargument that the mere absence of the work from the catalogue did not necessarily mean the work was inauthentic, particularly because the catalogue is periodically revised; but the court held that that was an argument for a jury, not one suitable for a motion to dismiss.
 
The recent decision is a reminder of the unique challenges involved in fraud cases.  When accusing a defendant of fraud, a plaintiff’s complaint is required to allege a higher level of “particularity” or specificity than is required for other types of claims (such as breach of contract).  This sometimes means that a complaint may be vulnerable to challenge at an early stage of the litigation, where a defendant may file a motion to dismiss in an effort to avoid the expense of discovery.  On the other hand, defendants must keep in mind that courts are often reluctant to rule on issues such as “reasonable reliance” or a defendant’s “intent” as a matter of law, and may instead order that such issues must await discovery or even trial.  This is especially true where the parties’ arguments may, at least in part, involve an assessment of what would have been considered standard diligence in the art market at the relevant time. 
 
Christie’s Trial Postponed Pending Appeal
 
We wrote last month that a trial was “imminent” in the case of Angiolillo v. Christie’s et al. (Case No. 650871/2015, N.Y. Co.), a dispute over who rightfully owned a giant pink diamond auctioned at Christie’s in 2013.  Indeed, a trial was set for November 6, and a jury had been empaneled.  But just a few days before the trial was to begin, the Defendants obtained a stay, postponing the trial until a New York appellate court is able to rule on two separate appeals (First Department dockets 2019-4663 and 2019-04258) that are already pending from earlier decisions in the case.  Those appeals implicate, among other things, the choice of law applicable to the case (New York or Switzerland), as well as issues that the trial court felt should be left to a jury (including the application of laches and the good faith of certain parties involved with the diamond).  The parties on appeal also dispute whether “tax estoppel” should apply here; that doctrine prevents parties from taking a position in court that is contrary to a position they have taken in their tax documents, but the parties here disagree over whether it should apply against the plaintiffs based on Italian tax documents.  The Defendants’ proffered rationale in seeking the stay of the trial was that, if they prevail in one or both of the pending appeals, that might significantly change the issues for trial or even render a trial unnecessary.  An examination of the docket suggests that the Plaintiffs are now seeking to have the two appeals briefed together in early 2020. 
 
The abrupt postponement of the trial here is a function of the fact that, in certain situations, parties in New York state court have the option to appeal “interlocutory” decisions—that is, decisions by the trial court that are not a final resolution of the case, but rather represent an intermediate decision along the way to a trial.  (Interlocutory appeals are also sometimes permitted in federal court, but under more limited circumstances.)  This means, in practice, that a case—like this one—may generate multiple appeals before it even reaches trial, and even that a case may be proceeding in tandem before an appeals court and a trial court at the same time. 
 
An Ounce of Prevention
 
These cases, like many art disputes, involve questions about what the various sellers and buyers “should have known” regarding a valuable piece of property.   And in that vein, these cases also remind those involved in art transactions to keep in mind that, if an art deal goes awry, litigation can be a lengthy and expensive prospect.  Many cases—even fraud cases, where the plaintiff has a higher burden of pleading at the outset—do not lend themselves to early resolution, and may need to proceed through discovery, summary judgment, or even trial, and that path may, in some cases, involve interlocutory appeals as well.  While experienced legal counsel can certainly shepherd a case through all of these hurdles, parties are often better off seeking pre-sale legal advice and performing thorough pre-sale diligence (particularly as to title, provenance, and authenticity) to avoid problems in the first place—and to potentially save themselves the time, money, and headache inherent in a lengthy court battle.