De Sole v. Knoedler Gallery, LLC

137 F.Supp.3d 387

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

v.KNOEDLER GALLERY, LLCd/b/a Knoedler & Company, Ann Freedman, Glafira Rosales, Jose Carlos Bergantinos Diaz, Michael Hammer, 8–31 Holdings, Inc., and Jaime Andrade, 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., José 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 Sept. 30, 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 U.S. 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.

Plaintiffs Domenico De Sole, Eleanore De Sole, and John Howard bring these actions against Defendant Knoedler Gallery, LLC ("Knoedler"); 8–31 Holdings Inc. ("8–31"), Knoedler's sole member; Michael Hammer, Knoedler's managing member and the owner of 831 Holdings, Inc.; Ann Freedman, Knoedler's former president; Glafira Rosales, an art dealer who brought certain paintings to Knoedler; Jose Carlos Bergantinos Diaz, Rosales's "longtime companion"; and Jaime Andrade, a former Knoedler employee who introduced Rosales to Knoedler and Freedman.¹ (Second Amended Complaint ("SAC") (De Sole Dkt. No. 118) ¶¶ 1620, 226, 244, 248; Am. Cmplt. (Howard Dkt. No. 179) ¶¶ 12, 23–25, 31–34)

On September 30, 2013, this Court issued a memorandum opinion and order granting in part, and denying in part, Defendants' motions to dismiss the complaints in both actions. De Sole v. Knoedler Gallery, LLC, 974 F.Supp.2d 274, 285 (S.D.N.Y.2013). Plaintiffs in both actions then filed amended complaints. (See SAC (De Sole Dkt. No. 118); Am. Cmplt. (Howard Dkt. No. 179)). The amended complaints allege that paintings that Plaintiffs purchased from Knoedler—on the representation that they had been created by Mark Rothko and Willem de Kooning—were forgeries.² Plaintiffs assert causes of action arising under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 et seq., 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. (SAC (De Sole Dkt. No. 118) ¶¶ 181–292; Am. Cmplt. (Howard Dkt. No. 179) ¶¶ 259–391)

On October 1, 2014, Defendants 8–31, Hammer, and Knoedler moved to dismiss certain claims in the De Sole Second Amended Complaint and the Howard Amended Complaint. (De Sole Dkt. Nos. 210, 211, 213, 215; Howard Dkt. Nos. 264, 266, 268) For the reasons stated below, Defendants' motions to dismiss will be granted in part and denied in part.

PROCEDURAL HISTORY³

I. CLAIMS PLED IN EARLIER COMPLAINTS

The De Sole action was filed on March 28, 2012, and the Howard action was filed on July 6, 2012. (Cmplt. (De Sole Dkt. No. 1); Cmplt. (Howard Dkt. No. 1)) On September 13, 2012, the De Sole Plaintiffs filed an amended complaint against Defendants Knoedler Gallery, LLC d/b/a Knoedler & Company, Ann Freedman, Glafira Rosales, Jose Carlos Bergantinos Diaz, Michael Hammer, and Jaime Andrade. (Am. Cmplt. (De Sole Dkt. No. 17)) The De Sole Amended Complaint pleads the following causes of action:

(1) substantive RICO and RICO conspiracy claims against all Defendants;

(2) fraud and fraudulent concealment claims against Knoedler and Freedman;

(3) a fraud conspiracy claim against all Defendants; and

(4) an aiding and abetting fraud claim against Hammer, Andrade, Bergantinos Diaz, and Rosales.

(Id. ¶¶ 136–208) This complaint does not assert any claims against 8–31 Holdings, Inc. See id.

Plaintiff Howard's original complaint asserted claims against 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. (Howard Dkt. No. 1 (Cmplt.)) Howard's Complaint pleads the following causes of action:

(1) substantive RICO and RICO conspiracy claims against all Defendants;

(2) a fraud claim against Knoedler and Freedman;

(3) fraudulent concealment and a fraud conspiracy claim against Knoedler, Hammer, and Freedman;

(4) an aiding and abetting fraud claim against Hammer;

(5) a breach of warranty claim against Knoedler and Freedman; and(6) claims of unilateral mistake and mutual mistake against Knoedler.

(Id. ¶¶ 305–415)

The De Sole Amended Complaint and the Howard Complaint contain the following factual allegations concerning Hammer:

(1) In 2003, Freedman faxed to Hammer a 2003 [International Foundation for Art Research] report related to a purported Jackson Pollock painting sold to Jack Levy. The report called into question the provenance of the painting. (Am. Cmplt. (De Sole Dkt No. 17) ¶¶ 39, 42–44; Cmplt. (Howard Dkt. No. 1) ¶¶ 43, 4648, 65–67)

(2) A handwritten note on the reverse side of the cover sheet for the above-referenced fax contains the following phrases in quotation marks: "discreet sources are my stock in trade," "don't kill the goose that's laying the Golden egg," and "I am not going to change my way of doing business. If you are not [comfortable]—step away." (Cmplt. (Howard Dkt. No. 1) ¶ 69; Am. Cmplt. (De Sole Dkt. No. 17) ¶ 45)

(3) Hammer determined Freedman's compensation based on Knoedler's profits, and—during the years that sales of Rosales-related paintings were at their peak—he twice increased her compensation. (Am. Cmplt. (De Sole Dkt No. 17) ¶¶ 8, 15, 100)

(4) Hammer was aware that payments to Rosales were wired to Bergantinos Diaz's brother in Spain. (Cmplt. (Howard Dkt. No. 1) ¶¶ 38, 192)

(5) Hammer knew of the outsized profits Knoedler derived from sales of paintings obtained from Rosales. (Am. Cmplt. (De Sole Dkt. No. 17) ¶ 8; Cmplt. (Howard Dkt. No. 1) ¶¶ 186, 278)

(6) Hammer profited from the alleged fraudulent scheme. (Am. Cmplt. (De Sole Dkt. No. 17) ¶ 8)

As to 8–31 Holdings, Inc., the Howard Complaint alleged that

Knoedler's sole member is defendant 8–31 Holdings, Inc., a Delaware corporation which lists its most recent principal place of business with the New York Secretary of State as 19 East 70th Street, New York, New York but, on information and belief, is actually located at a warehouse somewhere on Manhattan's West Side. On information and belief, 8–31 Holdings, Inc. also owns Hammer Galleries, LLC (another art gallery) and Knoedler Archivum, Inc., the latter of which, on information and belief, owns one of the most-valuable art archives and libraries in the world.

(Cmplt. (Howard Dkt. No. 1) ¶ 18)

With respect to Howard's breach of warranty claim against Knoedler and Freedman, Howard asserted that Freedman and Knoedler made the following representations to him and his advisor and agent—Jaime Frankfurt:

(1) the [w]ork was created by Willem de Kooning in 1956–57;

(2) the [w]ork was owned by the son of a Swiss private collector who obtained the [w]ork from de Kooning via David Herbert;

(3) the [w]ork came directly to Knoedler from an individual, whom Knoedler and Freedman knew personally; and

(4) the [w]ork was a "rare" and "distinctive" example of a de Kooning landscape and that it was of "impeccable" quality and provenance.

(Cmplt. (Howard Dkt. No. 1) ¶ 377) Howard further alleged that Knoedler and Freedman's representations to Howard and Frankfurt constitute express warranties under N.Y.U.C.C. § 2–313(1). (Id. ¶ 380) Howard also alleged that "the representations concerning authenticity and provenance in the invoice by defendants (who are art merchants) to Howard (who is not) constitute express warranties under § 13.01 of the New York Arts and Cultural Affairs Law." (Id. ¶ 381) Finally, Howard claimed that "Freedman and Knoedler concealed ... information [about authenticity and provenance] from Howard such that Howard was unable, despite due diligence, to bring his claims in a timely manner." (Id. ¶ 383)

With respect to Howard's unilateral mistake and mutual mistake claims against Knoedler, the Howard Complaint alleges that "Howard [had a] mistaken belief that: (1) the [w]ork was owned by a Swiss private collector who obtained the [w]ork through David Herbert and passed title "by descent" to his son; (2) there were no questions about the [w]ork's authenticity; and (3) the [w]ork was fully marketable." (Id. ¶ 391) Howard purchased the painting "without any knowledge of these mistakes," "exercised reasonable diligence in investigating the [w]ork prior to its purchase," and "would not have been able to ascertain the truth concerning his mistaken belief at the time of the sale of the [w]ork because such information was exclusively in the defendants' possession." (Id. ¶¶ 392–94) Howard further alleged that a mutual mistake "existed by virtue of both Howard's and Knoedler's mutual mistake that the [w]ork was an authentic de Kooning." (Id. ¶ 406) The Howard Complaint pleads the same two mistake claims against Knoedler with respect to Frankfurt's mistaken belief.⁴ (Id. ¶¶ 247, 397–404, 410–15)

II. RESOLUTION OF DEFENDANTS' FIRST MOTION TO DISMISS

All Defendants moved to dismiss. (De Sole Dkt. Nos. 24, 27, 63, 71, 75; Howard Dkt. Nos. 35, 39, 45, 48, 74, 76) On September 30, 2013, this Court granted in part and denied in part Defendants' motions. De Sole, 974 F.Supp.2d 274.

A. Dismissal of All Claims Against Hammer

This Court dismissed all claims against Hammer in both cases, De Sole, 974 F.Supp.2d at 302–04, reasoning...