Galin v. Hamada, 15-CV-6992 (JMF)
Decision Date | 10 May 2016 |
Docket Number | 15-CV-6992 (JMF) |
Parties | REED GALIN, Plaintiff, v. KUNITAKE HAMADA, Defendant. |
Court | U.S. District Court — Southern District of New York |
Plaintiff Reed Galin brings this action to recover proceeds from the sale at auction of a painting by Andrew Wyeth titled "Ice Storm," which are being held in escrow by Christie's. (See Compl. (Docket No. 1) ¶¶ 1, 73-80). Plaintiff alleges that, in 1989, he purchased a one-third interest in the painting from his childhood friend David Ramus, "an art dealer." . Ramus was to then re-sell the painting, with a share of the proceeds going to Plaintiff. . Without Plaintiff's knowledge or permission, Ramus did re-sell the painting later in 1989, by exchanging it and "some cash" for "a more valuable painting" from the now-defunct Coe-Kerr Gallery ("Coe-Kerr") in New York City; Ramus then used the more valuable painting to satisfy a personal debt. (See id. ¶¶ 36-37). Plaintiff did not learn about the transaction with Coe-Kerr until 1996 (the same year that Ramus was convicted of art fraud offenses in the Northern District of Georgia and a year before Ramus declared bankruptcy), and did not locate the painting until 2015, when he learned that the painting — which had subsequently been purchased by Defendant Kunitake Hamada, "an art dealer" — was to be auctioned at Christie's. . Plaintiff initially sought to block the sale, but the parties ultimately agreed that the sale should proceed and that Christie's would hold the net proceeds (which turned out to be slightly more than $800,000) pending adjudication of the parties' rights to the painting. (See id. ¶¶ 73-80).
Defendant now moves, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss Plaintiff's Complaint. Defendant's principal argument is that any interest Plaintiff had in the painting was extinguished pursuant to the "entruster provision" of the Uniform Commercial Code, see N.Y. U.C.C. Law § 2-403, when Ramus sold the painting to Coe-Kerr in 1989. (Mem. Law Supp. Def.'s Mot. Dismiss (Docket No. 10) ("Def.'s Mem.") 9-14). That provision states that "[a]ny entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business." N.Y. U.C.C. Law § 2-403(2); see also id. § 2-403(3) ( ). The purpose of the entruster provision is "to 'enhance the reliability of commercial sales by merchants . . . by shifting the risk of resale to one who leaves his property with [a] merchant.'" Overton v. Art Fin. Partners LLC, No. 15-CV-3927 (SAS), 2016 WL 413128, at *7 (S.D.N.Y. Feb. 2, 2016) (quoting Zaretsky v. William Goldberg Diamond Corp., 69 F. Supp. 3d 386, 389 (S.D.N.Y. 2014)); see also Porter v Wertz, 53 N.Y.2d 696, 698 (1981) ( ); Brown v. Mitchell-Innes & Nash, Inc., No. 06-CV-7871 (PAC), 2009 WL 1108526, at *4 (S.D.N.Y. Apr. 24, 2009) .
The Court agrees with Defendant that, if the entruster provision applies to the 1989 sale from Ramus to Coe-Kerr, Plaintiff's claims fail as a matter of law — without regard for the circumstances under which Defendant himself procured the painting. See, e.g., Goodwin v. Harrison, 98 S.E.2d 255, 258 (S.C. 1957) . The problem with Defendant's argument is that the weight of authority makes plain that Section 2-403 establishes an affirmative defense. See, e.g., United States v. Cont'l Ill. Nat. Bank & Trust Co. of Chi., 889 F.2d 1248, 1253-54 (2d Cir. 1989) ( ); accord, e.g., Integrity Bank Plus v. Talking Sales, Inc., No. 04-CV-4523 (RHK) (JSM), 2005 WL 419694, at *3-4 (D. Minn. Feb. 22, 2005); In re Certain Pharm. & Proceedings of Northland Providers, Inc., 78 F. Supp. 2d 954, 962-64 (D. Minn. 1999); see also Spainerman Gallery, Profit Sharing Plan v. Merritt, No. 00-CV-5712 (LTS) (THK), 2003 WL 289704, at *6 (S.D.N.Y. Feb. 6, 2003) ( ); Porter v. Wertz, 416 N.Y.S.2d 254, 257 (N.Y. App. Div. 1979) (, )aff'd, 53 N.Y.2d 696 (1981); Fed. R. Civ. P. 8(c)(1) ( ). But see Brown, 2009 WL 1108526, at *7 ( ). And the law is clear that a plaintiff is not required "to anticipate potential affirmative defenses . . . and to affirmatively plead facts in avoidance of such defenses." Abbas v. Dixon, 480 F.3d 636, 640 (2d Cir. 2007). Instead, a court may grant a motion to dismiss based on an affirmative defense only if, on the face of the complaint, the defense "clearly" applies. See Harris v. City of N.Y., 186 F.3d 243, 250 (2d Cir. 1999).
Here, given Plaintiff's own allegations in the Complaint, it seems likely that the entruster provision will apply. Among other things, those allegations seem to establish that Ramus qualified as a "merchant" who regularly sold paintings (Compl. ¶¶ 16, 37, 40-41); that Plaintiff "entrusted" the painting to Ramus within the meaning of Section 2-403(3) ; and that the sale price was not "obviously below market" (see id. ¶ 36), one of the principal "red flags" that could defeat application of the entruster provision, see Joseph P. Carroll Ltd. v. Baker, 889 F. Supp.2d 593, 604 (S.D.N.Y. 2012); accord Davis v. Carroll, 937 F. Supp. 2d 390, 426 (S.D.N.Y. 2013). And while the Complaint does assert that Coe-Kerr "was not a good-faith purchaser for value" (Compl. ¶ 59) and that Coe-Kerr "committed its own fraud in the transaction" (id. ¶ 39), the Court need not consider such conclusory allegations on a motion to dismiss. See, e.g., Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 686 (2009). Nevertheless, the Court is unable to conclude that the defense is "clear" on the face of the Complaint because the ultimate question of whether Coe-Kerr purchased the painting in "good faith" as a "buyer in the ordinary course" within the meaning of Section 2-403 requires consideration of facts outside the Complaint — for example, whether Coe-Kerr had any "warning signs" about Ramus's right to sell the painting and, perhaps, the "standards of the art industry" (given Coe-Kerr's own status asa "merchant"). See Graffman, 1998 WL 55371, at *5 (); see also, e.g., Davis, 937 F. Supp. 2d at 426 (); Interested Lloyd's Underwriters v. Ross, No. 04-CV-4381 (RWS), 2005 WL 2840330, at *5 (S.D.N.Y. Oct. 28, 2005) (). Accordingly, the Court may not grant Defendant's motion based on the entruster provision of Section 2-403.
Defendant's other arguments merit little discussion at this stage. The first — that under the law of bankruptcy, Plaintiff's interest might have been turned over to Ramus's estate — is irrelevant, as Defendant himself appears to concede. (Def.'s Mem. 15 ()). Likewise, even if it was impossible for Plaintiff to have acquired full title to the painting through the bankruptcy process, as he asserts (Compl. ¶ 62), he presumably retained at least his partial interest. Second, although Defendant argues briefly that Plaintiff's particular claims fail as a matter of New York law , the Court declines to reach those arguments now, with one exception. Defendant argued in his opening brief that Plaintiff's equitable lien claim fails because he does not allege an express or implied contract between the parties. (Def.'s Mem. 16). But Defendant did...
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