The opinion of the court was delivered by: SHIRA A. SCHEINDLIN
SHIRA A. SCHEINDLIN, U.S.D.J.
William Foxley ("Foxley") has filed a Proposed Second Amended Complaint ("SAC") alleging seventeen causes of action against Sotheby's, Inc. ("Sotheby's"), a leading auction house for fine art. Foxley seeks damages in connection with his purchase at auction of a painting subsequently regarded as inauthentic. Defendant moves to dismiss all counts.
Foxley brought this action approximately seven years after his December 3, 1987 purchase at auction of a painting entitled "Lydia Reclining on a Divan." SAC at P 10. The piece was represented to be the work of Mary Cassatt. SAC at P 10. Based on this representation, plaintiff bid and paid $ 632,500, which included a 10% auction house premium. SAC at P 33.
Sotheby's auction catalog stated that the painting would be accompanied by a copy of a letter "discussing" the work from Adelyn Dohme Breeskin ("Breeskin letter"), who, at one time was considered an authority on Cassatt.
SAC at P 11; Auction Catalog, December 3, 1987. The catalog guaranteed the authenticity of the painting for five years from the date of the sale. Auction Catalog, December 3, 1987. Foxley asserts that in 1992 he realized he did not have a copy of the Breeskin letter in his files. After notifying Sotheby's, Foxley received a letter stating that Sotheby's did not have the letter in its "immediate possession" at that time. SAC at P 42. Foxley asserts that he did not receive a copy of the Breeskin letter until 1993, when he learned for the first time that Breeskin's comments were predicated upon her review of a color transparency of the painting rather than the original. SAC at P 12, Ex. B. Plaintiff alleges he would not have bid on the painting if he had prior knowledge of this fact or the fact that, as Sotheby's allegedly knew, Breeskin had alerted the art world to massive Cassatt forgeries. SAC at PP 19, 23.
Nearly six years after his purchase, in August 1993, plaintiff consigned the painting to Sotheby's for auction to be held on December 2, 1993. SAC at P 24. Prior to the auction, on November 30, 1993, Sotheby's advised Foxley that the Cassatt Committee determined the painting might be inauthentic and advised that he remove it from the auction. SAC at PP 25, 30. Foxley alleges this is when he first received actual notice of inauthenticity. SAC at P 31. Foxley removed the painting from the auction block. However, he agreed to refrain from causing "damage" to the auction and Sotheby's by withdrawing the remainder of his consignment in consideration for defendant's alleged promise to refund Foxley's purchase price. SAC at PP 38-40. As a result of Sotheby's refusal to refund Foxley's purchase price, this action was commenced on September 28, 1994. SAC at P 26.
For purposes of a 12(b)(6) motion, courts must consider all material factual allegations in the complaint to be true and construe all reasonable inferences in a light most favorable to the plaintiff. See Paulemon v. Tobin, 30 F.3d 307 (2d Cir. 1994). The complaint may be dismissed only if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief. Id. at 309.
Foxley's first cause of action alleges fraud. Sotheby's seeks dismissal based on the failure to state a claim and the statute of limitations.
1. Failure to State a Claim
Under New York law, the elements of common law fraud are: (1) false representation(s) of (2) material fact with (3) intent to defraud thereby [scienter] and (4) reasonable reliance on the representation (5) causing damage to plaintiff. Turtur v. Rothschild Registry Intl., Inc., 26 F.3d 304, 310 (2d Cir. 1994). Plaintiff alleges several bases for his fraud claim.
a. Sotheby's Failure to Provide the Breeskin Letter
First, despite defendant's statement that the Breeskin letter would accompany the painting, Foxley claims "upon information and belief" that Sotheby's did not have a copy of the Breeskin letter at the time of the auction. SAC at P 11. The complaint fails to provide a factual basis for this allegation. As an allegation of fraud, therefore, it is not plead with sufficient specificity. The Second Circuit has spoken clearly on this issue.
Allegations may be based on information and belief when facts are peculiarly within the opposing party's knowledge. This exception to the general rule must not be mistaken for license to base claims of fraud on speculation and conclusory allegations. Where pleading is permitted on information and belief, a complaint must adduce specific facts supporting a strong inference of fraud or it will not satisfy even a relaxed pleading standard.
Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d Cir. 1990); see also IUE AFL-CIO v. Herrmann, 9 F.3d 1049, 1057 (2d Cir. 1993). Further, even if Sotheby's did not have a copy of the letter at the time of the auction, fraud cannot be established on these facts. Rather, since fraud requires false representation(s) and intent, the claim could stand only if defendant knowingly misrepresented that the letter would accompany the painting. The critical allegation that is absent from the complaint is that Sotheby's falsely represented that it would deliver a copy of the Breeskin letter together with the painting.
Second, Foxley alleges that if Sotheby's did have a copy of the letter, it "intentionally hid" the fact that Breeskin had relied on a photograph to authenticate the painting. SAC at P 12. This allegation cannot serve as a basis for fraud. Sotheby's made only one representation with respect to the Breeskin Letter in its Auction Catalog: "A copy of a letter from Adelyn Dohme Breeskin discussing the painting will accompany the lot." Auction Catalog, December 3, 1987. The letter does just that; it discusses the painting. Despite plaintiff's assertions to the contrary, the Auction Catalog never represents that the Breeskin letter authenticates the painting. More importantly, Foxley never alleges how Sotheby's made a false misrepresentation and therefore has failed to state a claim based on this set of facts.
Further, this allegation fails to establish that Foxley justifiably relied upon Sotheby's representation that the painting would be accompanied by a letter. Foxley bought the painting in 1987 but allegedly did not receive the Breeskin letter until 1993. Transcript of Oral Argument, March 15, 1994, ("Tr.") at 29. There was more than enough time during this period to either attempt to obtain the letter or to realize that Sotheby's had failed to comply with its representation in the Auction Catalog.
Only two factual scenarios are possible; plaintiff either received the letter or he did not. Had Foxley obtained the letter, he would have discovered that Breeskin's discussion of the painting had been based on a transparency. Therefore, he could not have justifiably relied upon the letter as authentication for the painting. Alternatively if, as Foxley alleges, he did not acquire the letter for close to six years following his purchase, he could not justifiably rely on a letter he had not read.
Finally, the failure to receive the Breeskin letter does not establish fraud because it is an alleged omission of fact to which Foxley had access. "The principle that access bars claims of justifiable reliance is well settled. . ." Congress Fin. Corp. v. John Morrell & Co., 790 F. Supp. 459, 470-71 (S.D.N.Y. 1992). The New York Court of Appeals established in Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 320, 184 N.Y.S.2d 599, 157 N.E.2d 597 (1959) that where:
facts represented are not matters peculiarly within the party's knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence. . . he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentation.
See also Grumman Allied Indus., Inc. v. Rohr Indus., Inc., 748 F.2d 729, 737 (2d Cir. 1984) ("where sophisticated businessmen engaged in major transactions enjoy access to critical information but fail to take advantage of the access, New York courts are particularly disinclined to entertain claims of justifiable reliance"); Aaron Ferer & Sons, Ltd. v. Chase Manhattan Bank, N.A., 731 F.2d 112, 123 (2d Cir. 1984). While plaintiff does allege lack of sophistication and familiarity with respect to American Impressionism, Cassatt's specialty, Foxley was a sophisticated purchaser of art at auction. He certainly knew how to demand a letter described in an auction catalog, something he successfully accomplished in 1993. See Tr. at 29.
In Aaron, justifiable reliance was rejected because "all of the information [claimed to be concealed] was either public record, not pursued by plaintiffs or disclosed [by defendant], at least in part." Id. at 123. In Foxley's case, a reasonable response should have led him either to obtain the letter (and thereby inform himself that Breeskin relied upon a photograph) or to deduce that Sotheby's conduct was suspect and take appropriate action. Therefore, the fact that Breeskin relied on a color transparency was readily available, in the public domain, and plaintiff did not reasonably rely on or ascertain the existence and content of the letter. This allegation cannot serve as the basis for a fraud cause of action.
c. Sotheby's Failure to Disclose Breeskin's Unreliability