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Art Law
READING THE TEA LEAVES IN THE KNOEDLER MESS
Say you are a very well-regarded art dealer who has been for years selling major Abstract-Expressionist paintings for millions of dollars apiece, and they are later called fakes. Now you face lawsuits by various unhappy buyers of those works. What are the possible outcomes of this situation?
Why be hypothetical? This is the circumstance involving the now-closed Knoedler & Company art gallery in New York City and its long-time director, Ann Freedman, which since the mid-1990s had sold at least 20 (and perhaps more) paintings that appear to be the work of such artists as Willem de Kooning, Franz Kline, Robert Motherwell, Barnett Newman, Jackson Pollock, Mark Rothko and Clyfford Still. The story broke last fall and has been reported in considerable detail in the New York Times by journalist Patricia Cohen.
The Knoedler Gallery acquired these paintings from a small-time Long Island art dealer, Glafira Rosales, who claimed to have gotten them from a collector she has refused to identify. The paintings all looked real to Freedman.
Lawsuits have begun to pile up, while an FBI investigation into the matter is ongoing. Freedman resigned as president of Knoedler in 2009, and late last year Knoedler closed its doors after 165 years in operation, claiming that the move was a business decision unrelated to the lawsuits. Knoedler’s put its 20,000 square-foot building on East 70th Street up for sale in December, initially asking $59.5 million and finally accepting $31 million in February.
Knoedler has apparently returned works on consignment from the contemporary artists it showed, but one might guess that the gallery has inventory, though no details have been made public. A stockpile of assets may be useful as these cases drag on. The principal owner of Knoedler appears to be the Armand Hammer Foundation in Carpinteria, Ca., headed by Michael A. Hammer.
One Manhattan lawyer, who asked not to be identified, suggested that a person in Freedman’s position, too, might be “shifting assets.” However, instead of stockpiling cash in preparation of a legal settlement, she is apt to be turning over her money to her husband and children in order to protect it from the claims of disgruntled art collectors. “That’s what I would be advising her to do,” the lawyer stated, adding that “she may go into bankruptcy.”
The lawsuits against both Knoedler and Freedman allege fraud, which indicates the conscious intent to deceive collectors by misrepresenting the artworks that were being sold. A number of lawyers active in the art field stated that proving fraud on the part of Freedman would be difficult, because she has developed a very positive reputation as an art dealer over the course of several decades and because she bought several of the paintings from Rosales for her own art collection. “She was also a victim, if these paintings are indeed fakes,” a lawyer stated.
“I would be astounded if Ann Freedman went to jail,” said Susan Duke Biederman, co-author of the three-volume Art Law. “She doesn’t represent a societal problem, which is what jails and the criminal justice system is for.” However, she noted that simply claiming that Freedman also bought paintings from Rosales doesn’t prove her innocence, since “a lawyer could claim” that she did so in order to convince gullible collectors that she had absolute trust in their authenticity.
Fraud can be more nuanced, referring not only to willful misrepresentation but to unsubstantiated claims -- sales talk -- about the paintings in question. Freedman admitted in a court hearing in December to having told Pierre Lagrange, who in 2007 had bought an untitled work purported to be by Jackson Pollock, that the painting would be included in the supplement to the Pollock catalogue raisonne, when in fact she knew there would be no supplement. Freedman also told other buyers that experts had authenticated certain works when in actuality she had not always brought in experts (the artist Frank Stella was reportedly shown a number of these paintings, for instance) and that none of the artworks were fully vetted by the people most capable of doing so.
In addition to fraud, Lagrange also charged both Knoedler and Freedman with breach of warranty -- that is, he claims the painting he purchased is not what it was purported to be -- which is less difficult to prove. Rosales, who was the primary target of the FBI investigation, was summoned to the December hearing, which she attended with her lawyer and asserted her Fifth Amendment right not to incriminate herself.
Part of the reason that collectors are claiming that the gallery and Freedman had to know that the artworks acquired from Rosales weren’t right was that disputes over these paintings had been coming up for some time. In 2002, Jack Levy, a Goldman Sachs co-chairman, bought an untitled Jackson Pollock work for $2 million, later bringing it to the International Foundation for Art Research for authentication. IFAR would not attribute the painting to Pollock, and Levy demanded his money back. He was paid.
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The problem of these Rosales-sourced paintings began to metastasize when another art dealer, Julian Weissman, who used to work as an associate director at Knoedler during the 1980s, acquired three paintings from Rosales, including a Robert Motherwell “Elegy,” which he sold to the Irish art gallery Killala Fine Art for $650,000 in 2007. That gallery sought authentication from the Dedalus Foundation, which Motherwell had set up during his life and which has long been working on a Motherwell catalogue raisonne, but Dedalus rejected the artwork. Killala brought a lawsuit against both Weissman and Rosales, and last October, that dispute was settled out of court, with Weissman paying back the $650,000 in addition to $34,778 to the Dedalus Foundation and Rosales paying $600,000 to Weissman and another $135,221 to Dedalus.
Last year, Pierre Lagrange, the British hedge fund director who had purchased the untitled Pollock in 2007 (for a reported $17 million), filed a lawsuit against Knoedler and Freedman after discovering in 2010 that he could not resell the work because of concerns about its authenticity. The most recent lawsuit, filed last month, was brought by Domenico and Eleanore De Sole, who bought an untitled Rothko in 2004 for $8.3 million, which the new owners also brought to experts for authentication and were told that the materials and style were “inconsistent and irreconcilable” with other paintings by the artist.
The legal problems for Knoedler & Company and Ann Freedman might go on for years. “Lawsuits that end quickly are ones in which everyone agrees on the facts,” said New York lawyer Jo Backer Laird. Cases that are fact-based but where the facts are in dispute, on the other hand, take longer to resolve. Charles D. Schmerler, the lawyer representing Knoedler, said in a statement, “Any suggestion that Knoedler defrauded these or any other of its valued clients is baseless and irresponsible.” One may guess that many more claims and counterclaims will be made.
One can speculate that Freedman wished these paintings to be authentic and so believed them to be, failing to inquire about them more deeply from Rosales. Such a circumstance could be said to have led the art dealer to have a reckless disregard for the truth, which is also a definition of fraud. The insurance company that provided coverage for Knoedler & Company likely included an errors and omissions policy, which could make it liable for claims, but the insurer may also dispute its responsibility, particularly if there is a question of fraud.
Then, Knoedler and Freedman might bring a lawsuit against the insurance company, but the outcome of such an action is difficult to determine. Last summer, a federal district judge ruled in support of AXA Art Insurance’s refusal to honor a $1.5 million claim made by its policyholder, the Philadelphia Museum of Art, after the museum had consigned two paintings -- Maurice Prendergast’s 1919-23 oil The Harbor and Arthur B. Davies’ undated watercolor Mountain Landscape -- to New York’s Salander-O’Reilly Galleries in 2006. Gallery owner Lawrence Salander sold the two paintings within weeks for $1.5 million. However, Salander never informed the museum of the sale, and museum officials only learned that the painting had been sold in 2009, after Salander-O'Reilly Galleries had declared bankruptcy. The AXA policy protected the work against theft or damage, neither of which actually took place, the court found.
Complicating the civil cases against the gallery and Freedman is the ongoing investigation of Rosales, who is more likely to be charged criminally and, if convicted, go to jail. Freedman is also a subject of the FBI probe, and she could make a plea deal with investigators, agreeing to cooperate (and, thereby, admitting some degree of culpability) in exchange for having no charges brought against her. A long federal investigation would probably lengthen the entire process of resolving the civil cases, and any admission of guilt on the part of Freedman would affect how these cases are resolved.
DANIEL GRANT is a contributing editor of American Artist magazine and the author of The Business of Being an Artist and several other books.
