De Sole v. Knoedler Gallery, LLC

• Decision Date: 09 October 2015
• Docket Number: 12 Civ. 5263(PGG).,Nos. 12 Civ. 2313(PGG),s. 12 Civ. 2313(PGG)
• Citation: 139 F.Supp.3d 618
• Parties: Domenico DE SOLE, and Eleanor De Sole, individually and as assignee of Laura De Sole, Plaintiffs, v. KNOEDLER GALLERY, LLC d/b/a Knoedler & Company, Anne Freedman, Glafira Rosales, Michael Hammer, and Jaime Andrade, and 8–31 Holdings, Inc., Defendants. John D. Howard, individually and as assignee of Jaime Frankfurt, LLC, Plaintiff, v. Ann Freedman, Glafira Rosales, Knoedler Gallery, LLC, d/b/a Knoedler & Company, Michael Hammer, 8–31 Holdings, Inc., Jose Carlos Bergantinos Diaz, and Jaime R. Andrade, Defendants.
• Court: U.S. District Court — Southern District of New York

139 F.Supp.3d 618

Domenico DE SOLE, and Eleanor De Sole, individually and as assignee of Laura De Sole, Plaintiffs,

v.KNOEDLER GALLERY, LLC d/b/a Knoedler & Company, Anne Freedman, Glafira Rosales, Michael Hammer, and Jaime Andrade, and 8–31 Holdings, Inc., Defendants.

John D. Howard, individually and as assignee of Jaime Frankfurt, LLC, Plaintiff,

v.Ann Freedman, Glafira Rosales, Knoedler Gallery, LLC, d/b/a Knoedler & Company, Michael Hammer, 8–31 Holdings, Inc., Jose Carlos Bergantinos Diaz, and Jaime R. Andrade, Defendants.

Nos. 12 Civ. 2313(PGG)

12 Civ. 5263(PGG).

United States District Court, S.D. New York.

Signed Oct. 9, 2015.

Gregory A. Clarick, Aaron Hayes Crowell, Emily Reisbaum, Isaac Berkman Zaur, Clarick Gueron Reisbaum LLP, New York, NY, for Plaintiffs.

Andrius R. Kontrimas, Houston, TX, Charles David Schmerler, India Decarmine, Fulbright & Jaworski L.L.P., Mark Allen Robertson, Sarah E. O'Connell, Norton Rose Fulbright US LLP, Nicholas A. Gravante, Jr, Luke William Nikas, Boies, Schiller & Flexner LLP, Silvia L. Serpe, Eric B. Einisman, Paul W. Ryan, Serpe Ryan LLC, New York, NY, Philip J. Iovieno, Boies, Schiller & Flexner LLP, Albany, NY, Anastasios Sarikas, Office of Anastasios Sarikas, Astoria, NY, for Defendants.

MEMORANDUM OPINION & ORDER

PAUL G. GARDEPHE, District Judge.

These actions arise from the sale of forged paintings that Plaintiffs purchased from Defendant Knoedler Gallery, LLC ("Knoedler"). In addition to Knoedler, the named defendants include 8–31 Holdings, Inc., Knoedler's sole member; Michael Hammer, Knoedler's managing member and the owner of 8–31 Holdings, Inc.; Ann Freedman, Knoedler's former president; and Jaime Andrade, a former Knoedler employee ("Defendants").¹ The operative complaints assert claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and state law causes of action for fraud, fraudulent concealment, aiding and abetting fraud, conspiracy to commit fraud, breach of warranty, and unilateral and mutual mistake. (Second Amended Complaint ("SAC") (De Sole Dkt. No. 118) ¶¶ 181–292; Am. Cmplt. (Howard Dkt. No. 179) ¶¶ 259–391)).

Between 1994 and 2008 Knoedler sold thirty-two paintings it acquired from Glafira Rosales, a Long Island art dealer, all of which were represented to be works created by well-known Abstract Expressionist artists, such as Mark Rothko, Willem de Kooning, and Jackson Pollock (the "Rosales Paintings"). (Plaintiff's Rule 56.1 Statement of Additional Material Facts ("Pltf. R. 56.1 Add. Stmt.") (De Sole Dkt. No. 236) ¶ 1983; List of Rosales Paintings (De Sole Dkt. No. 236), Ex. 53)² It is undisputed that all of the paintings Rosales brought to Knoedler—including the two paintings purchased by Plaintiffs—are forgeries. (Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 236) ¶ 1025; Defendants' Responses to Requests for Admission (De Sole Dkt. No. 236), Exs. 43, 44, 45) Plaintiffs allege that—as early as October 2003—Defendants had reason to doubt the authenticity of the Rosales Paintings. Defendants nonetheless continued to sell the Rosales Paintings at Knoedler until 2008.

Defendants have moved for summary judgment on all of Plaintiffs' claims. In an Order dated September 30, 2015, this Court granted in part and denied in part Defendants' motions. (De Sole Dkt. No. 261; Howard Dkt. No. 320) The purpose of this opinion is to explain the Court's reasoning.

BACKGROUND³

I. FACTS

A. The Knoedler Gallery, Ann Freedman, and Glafira Rosales

The Knoedler Gallery was founded by Michael Knoedler in 1846 and operated continuously for the next 165 years. (Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 236) ¶¶ 1026, 1979; Hammer Decl. in Opp. to TRO (De Sole Dkt. No. 236), Ex. 46 ¶ 2) Until it closed in 2011, the Knoedler Gallery was one of New York City's most venerable and respected art galleries. (Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 236) ¶ 1028)

In 1971, the gallery was purchased by Armand Hammer, the grandfather of Defendant Michael Hammer, and since that time the Hammer family has been directly responsible for the operations of the Knoedler Gallery. (Hammer Decl. in Opp. to TRO (De Sole Dkt. No. 236), Ex. 46 ¶ 2) Knoedler Gallery LLC, the current legal entity, is a Delaware limited liability company that was formed in 2001. (Def. R. 56.1 Stmt. (De Sole Dkt. Nos. 219, 220) ¶ 746; Def. Reply to Pltf. 56.1 Add. Stmt. (De Sole Dkt. No. 248) ¶ 1026; Def. Ex. 411 (Certificate of Formation)). Defendant 8–31 Holdings, Inc., a Delaware corporation also formed in 2001, is the sole member of Knoedler. (Def. R. 56.1 Stmt. (De Sole Dkt. Nos. 219, 220) ¶¶ 743, 745; SAC (De Sole Dkt. No. 118) ¶ 17; Am. Cmplt. (Howard Dkt. No. 179) ¶ 32)

Defendant Michael Hammer is the president, chief executive officer, chairman, and sole owner of 8–31 Holdings, Inc. ("8–31"), and became the sole manager of Knoedler in 2011. (Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 236) ¶¶ 1033, 1995, 2003; Hammer Dep. (De Sole Dkt. No. 236), Ex. 21 at 57)

Defendant Ann Freedman joined Knoedler's corporate predecessor in 1977 as the director of contemporary art. (Def. Reply to Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 248) ¶ 1032; Freedman Dep. (De Sole Dkt. No. 236), Ex. 18 at 21; Freedman Lagrange Tr. (De Sole Dkt. No. 236), Ex. 51 at 138) In 1994, she became president of M. Knoedler & Co, the gallery's corporate entity at that time.⁴ (Def. Reply to Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 248) ¶ 1034; Freedman Dep. (De Sole Dkt. No. 236), Ex. 18 at 21) Between 2001 and October 2009, Freedman was Knoedler's sole manager and a director of 8–31.⁵ (Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 236) ¶¶ 2002, 2004)

In the mid–1990s, Jaime Andrade, a longtime Knoedler employee, introduced Glafira Rosales to Freedman. (Def. R. 56.1 Stmt. (De Sole Dkt. Nos. 208, 228) ¶¶ 1, 1006; (De Sole Dkt. No. 236), Ex. 169 at 2) Rosales was a Long Island art dealer who claimed to have access to a collection of previously undiscovered works by certain well-known Abstract Expressionist artists. (Weissman Dep. (De Sole Dkt. No. 236), Ex. 40 at 33; Freedman Tr. (De

Sole

Dkt. No. 236), Ex. 18 at 338; Freedman Lagrange Tr. (De Sole Dkt. No. 236), Ex. 51 at 138) Andrade had met Rosales at an art gallery in the early 1990s.⁶ (Def. R. 56.1 Stmt. (De Sole Dkt. Nos. 208, 228) ¶¶ 2, 1003) Rosales told Andrade that she had a Mexican client who wanted to sell a collection of Abstract Expressionist artworks, but to do so anonymously. (Def. R. 56.1 Stmt. (De Sole Dkt. No. 228) ¶ 1004) Andrade reported to Freedman that Rosales had Abstract Expressionist artworks that she wanted to sell. (Id. ¶ 1005) Andrade then introduced Rosales to Freedman.⁷ (Id. ¶ 1006; Freedman Lagrange Tr. (De Sole Dkt. No. 236), Ex. 51 at 138, 193–94)

Over the next fifteen years, Rosales provided Knoedler with dozens of previously unknown "masterworks" by well-known Abstract Expressionist artists, and Knoedler sold these paintings to its customers. All of these paintings are forgeries. (Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 236) ¶ 1025)

In early 1994, Rosales consigned to Knoedler what she represented to be five paintings by Richard Diebenkorn. (Id. ¶¶ 1049–50, List of Rosales Paintings (De Sole Dkt. No. 236), Ex. 53 at KG–11152) Rosales represented that these works were from the collection of Cesareo Fontenla and came from the Vijande Gallery in Madrid, Spain. (Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 236) ¶ 1051; (De Sole Dkt. No. 236), Exs. 52, 53 at KG–11152, 60) Knoedler sold these paintings to its customers at large mark-ups⁸ without submitting them to the Diebenkorn catalogue raisonné committee for authentication.⁹

(Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 236) ¶¶ 1053, 1055, 1075–76) During a series of meetings in 1994 and 1995, members of the Diebenkorn family informed Freedman that at least two of the five purported Diebenkorns Rosales had provided did not appear to be authentic. (Id. ¶¶ 1057, 1060–61) The Diebenkorn family also expressed concern about the lack of documentation for one of the paintings—which the family viewed as highly suspicious—given that the artist and his family kept meticulous records of his work. (Id. ¶¶ 1065–67) All of the Diebenkorn paintings were later discovered to be forgeries. (Id. ¶ 1025)

Between 1995 and the spring of 1998, Knoedler sold three other works that Rosales had supplied, including a purported Franz Kline and a purported Mark Rothko. These paintings—all of which were forgeries—were allegedly from the collection of a man whom Rosales, Freedman, and others at Knoedler referred to as "Mr. X." Each painting was sold at a large mark-up.¹⁰ (Id. ¶¶ 1025, 1128, 1137; Knoedler Invoices (De Sole Dkt. No. 236), Exs. 84, 85, 86, 87)

Freedman testified that Rosales initially told her that these paintings belonged to a friend. (Freedman Lagrange Tr. (De Sole Dkt. No. 236), Ex. 51 at 197) The record is not clear as to what else Freedman had been told about these paintings before Knoedler sold them. The Knoedler invoices for two of these works state that they were initially acquired directly from the artist, and all three invoices state that the works were from a private collection in Mexico. (Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 236) ¶¶ 1129–30; Knoedler Invoices (De Sole Dkt. No. 236), Exs. 84, 85, 86) Knoedler's invoice for the purported Rothko states that the work is "[t]o be published in the forthcoming catalogue raisonné: Mark Rothko: Works on Paper, by David Anfam, (London: Yale University Press)." (Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 236) ¶ 1131; Knoedler Invoice (De Sole Dkt. No. 236), Ex. 85)

In May 1998, Hammer increased Freedman's base salary from $278,460 to $300,000 and her profit sharing percentage from 10% to 15%. (Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 236) ¶ 1134; Hammer Dep. (De Sole Dkt. No. 236), Ex. 21 at 347–48; Internal Memos (De Sole Dkt. No. 236), Ex. 88)

At a June 18, 1998 meeting with Rosales, Freedman and Knoedler's head of research "ask[ed] [Rosales for] more details about...