The opinion of the court was delivered by: Sidney H. Stein, U.S. District Judge.
This declaratory judgment action was tried to this Court on April 25-27, 2012. The Court finds that Joseph P. Carroll Limited was a buyer in the ordinary course of business and is entitled to a declaration that it has full title to the painting Untitled (1943) by John D. Graham. Accordingly, judgment shall be entered in favor of Joseph P. Carroll Limited. The following are the Court's Findings of Fact and Conclusions of Law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.*fn1
The Court has diversity jurisdiction over this action pursuant to 28 U.S.C. § 1332 because plaintiff Carroll Limited is a citizen of New York, defendant Baker is a citizen of Massachusetts, and the amount in controversy exceeds $75,000. (Complaint ¶ 4; Answer ¶ 4; Apr. 26 Tr. at 201:5-6.)
Plaintiff Joseph P. Carroll Limited is a corporation formed under New York law. (Trial Tr. dated Apr. 25, 2012 at 11:20-25; Stipulation of Fact, Ex. A to Joint Pretrial Disclosures ¶ 1.) Joseph P. Carroll, its sole stockholder and president, is a museum curator, philanthropist and private art dealer. (Apr. 25 Tr. at 8:6-10, 12:9-11; Stipulation of Fact ¶ 2.) Defendant Craig Baker is an art collector who owns a collection of artwork valued at several million dollars. (Trial Tr. dated Apr. 26, 2012 at 259:3-16; Stipulation of Fact ¶ 3.) Non-party Salander-O'Reilly Galleries ("SOG") was, until late 2007, according to the stipulation of the parties, "a prominent art gallery." (Stipulation of Fact ¶ 4.) Lawrence Salander was the principal of SOG until 2007, when it entered bankruptcy. (Stipulation of Fact ¶ 5; Apr. 26 Tr. at 279:22-25.) Salander was subsequently indicted for, inter alia, fraud and grand larceny relating to his management of the art gallery and is now serving a prison term. See People v. Salander,No. 03581/2009 (Sup. Ct., N.Y. Co.).
C. Baker's Purchase and Consignment of the Painting
The parties dispute the ownership of the painting Untitled (1943) by John D. Graham ("the Painting, or Untitled (1943)"), a twentieth-century American modernist painter. (Stipulation of Fact ¶ 6.) In 1982, Baker purchased the Painting from the Vanderwoude Tananbaum Gallery. (Apr. 26 Tr. at 259:22-260:3; Stipulation of Fact ¶ 7.) Baker's purchase of the Painting was not publicized, since it was a private sale. (Stipulation of Fact ¶ 8.) In July 2000, Baker orally consigned the Painting to SOG. (Apr. 26 Tr. at 261:1-6, 265:16-266:15; Stipulation of Fact ¶¶ 9-10.) The terms of the oral consignment agreement provided that SOG was not to sell the Painting for less than $250,000. (Apr. 26 Tr. at 265:23-266:2.) That was not based upon a formal appraisal of the Painting, but rather was based on a representation by Leigh Morse-director of SOG-of the price the gallery would ask for the work. (Apr. 26 Tr. at 261:7-12, 267:4-17.) Baker never filed a U.C.C. financing statement recording his interest in the Painting nor did he publicize the consignment of the Painting to SOG. (Apr. 26 Tr. at 273:14-23; Stipulation of Fact ¶¶ 12-13.) Between July 2000 and mid-2007, Baker orally consigned more than forty other works of art to SOG. (Stipulation of Fact ¶¶ 14-15.) Baker neither filed U.C.C. financing statements nor publicized the consignment of those works. (Stipulation of Fact ¶¶ 16-17.)
After the consignment of Untitled (1943) in 2000, Baker had "periodic conversations" with Morse "a couple of times a year" about the work and, once during a visit to the gallery, observed the work hanging in Morse's office. (Apr. 26 Tr. at 268:24-269:14.) Baker "never saw any stickers or marks or identification on the painting saying 'consignment' or reflecting that [the painting] was on consignment." (Apr. 26 Tr. at 270:12-20.) The Painting remained on consignment at SOG until January 2007 (Stipulation of Fact ¶ 18), when it was purchased by plaintiff.
D. Carroll Limited's Relationship with Salander-O'Reilly Galleries
Joseph Carroll met Salander in 1993 and first purchased art from SOG in 1998. (Apr. 25 Tr. at 18:6-13.) From 1998 to 2007, Carroll purchased approximately 120-150 pieces of art from SOG. (Apr. 25 Tr. at 18:14-17; Stipulation of Fact ¶ 20.) With two exceptions, Carroll purchased all of this art from SOG "in groups." (Apr. 25 Tr. at 18:24-19:8.) Unless Carroll was purchasing art at an auction, his usual method of purchasing art was to buy multiple paintings at once. (Apr. 25 Tr. at 19:9-16.)
In the spring of 2006, Carroll noticed that SOG was sometimes referred to in documents as "Salander-O'Reilly LLC" and sometimes as "Salander-O'Reilly, Incorporated." (Apr. 25 Tr. at 80:24-81:15.) Carroll was not concerned with which particular entity he dealt with, but rather that he understand which entity was on the other end of the relevant transaction. (Apr. 25 Tr. at 80:24-81:15.) He testified that he eventually received a "straight answer" from the gallery as to which business entity he was dealing with. (Apr. 25 Tr. at 81:8-17.)
That same year, Carroll discovered that First Republic Bank had placed two or three general asset liens on Salander-O'Reilly LLC. (Apr. 25 Tr. at 76:5-10, 165:13-22.) Carroll viewed the presence of these liens as "normal." (Apr. 25 Tr. at 76:5-10.) He also knew that there were specific liens on particular pieces of art at SOG, but he did not consider the specific liens to be problematic as long as the liens were not attached to a piece of artwork that he was considering purchasing. (Apr. 25 Tr. at 165:25-167:2.)
In August or September of 2006, Carroll visited SOG and noticed that the gallery was creating a "catalogue raisonne"*fn2 of the artist Stuart Davis's works. (Apr. 25 Tr. at 86:19-89:12.) Carroll believed that SOG's compilation of Davis's catalogue raisonne created a conflict of interest for SOG because SOG also sold works by Davis which it was simultaneously identifying as authentic in a comprehensive listing of Davis's works. (Apr. 25 Tr. at 88:2-16.) Carroll expressed this view to Davis's son, who relayed the substance of the conversation to Salander. (Apr. 25 Tr. at 91:3-13.) Salander subsequently asked Carroll to "come over" and "blew up at [him]" (Apr. 25 Tr. at 91:3-13), presumably for having questioned his integrity to Davis's son. However, this conversation did "not have any impact on the reputation and regard in which [Carroll] held . . . either Mr. Salander or the Gallery," according to Carroll. (Apr. 25 Tr. at 91:14-18.)
Later that fall, SOG expressed an interest in purchasing artwork from Carroll. (Apr. 25 Tr. at 91:19-92:16.) Although SOG proposed paying for the works by postdated check (Apr. 25 Tr. at 91:19-92:16), Carroll's attorney advised him not to accept a postdated check, and Carroll refused to do so (Apr. 25 Tr. at 92:2-92:16). Carroll nonetheless ultimately sold the works to SOG. (Apr. 25 Tr. at 92:17-19.)
E. Carroll Limited's Acquisition of the Painting
Carroll first saw the Painting-hanging in Morse's office-during a visit to SOG in the fall of 2000. (Apr. 25 Tr. at 30: 19-22, 30:23-31:15; Stipulation of Fact ¶ 21.) Carroll is a collector of Graham paintings-in 2000, he owned approximately twenty-four Graham works- and he expressed interest in Untitled (1943). (Apr. 25 Tr. at 31:15-21, 32:25-33:6.) Salander informed Carroll that he "wanted $175,000 for it." (Apr. 25 Tr. at 32:4-8.) Neither Salander nor any SOG staff member informed Baker that the Painting was held by SOG on consignment only and was not owned by SOG. (Apr. 25 Tr. at 37:15-19; Stipulation of Fact ¶ 22.) Carroll told Salander he "thought [the $175,000 asking price] was too much" and "told him the reasons why." (Apr. 25 Tr. at 32:4-8.) Carroll told Salander that pieces such as Untitled (1943), from Graham's middle period, command lower prices than pieces from Graham's later so-called "masochistic period"*fn3 and that pieces from the middle period would normally sell in the range of $50,000-$100,000. (Apr. 25 Tr. at 32:9-24.) Carroll did not purchase the Painting in 2000. (Apr. 25 Tr. at 37:13-14.)
In early January 2007, Carroll received a call from Salander saying that "he wanted me to come over and take a look at some pieces" of artwork. (Apr. 25 Tr. at 40:4-11.) As Carroll was soon to be leaving for Paris, he told Salander to send the materials to his office, and he would review them when he returned. (Apr. 25 Tr. at 40:4-11.) It was not unusual for Salander to call Carroll into the gallery to look at artwork, particularly because, according to Carroll, Salander understood the type of artwork that would interest Carroll. (Apr. 25 Tr. at 40:16-41:19.) Although defense counsel questioned whether this phone call actually took place, because Carroll did not refer to it in the course of his deposition (Apr. 15 Tr. at 132:20-135:10), this Court credits Carroll's testimony on the issue and finds that there is no inconsistency between his deposition testimony and his trial testimony on the question of the telephone call. (See Apr. 25 Tr. at 132:2-136:10.)
During this phone call, Carroll told Salander that he would be willing to purchase the art only if given a forty-percent discount off the list price. (Apr. 25 Tr. at 44:10-22.) Although Salander did not generally negotiate his prices (Apr. 25 Tr. at 122:9-21), he did offer discounted prices (see Apr. 25 Tr. at 45:6-46:25, 124:18-125). In early 2006, at the Miami-Basel art fair, Carroll had purchased several paintings from Salander at a forty-percent discount. (Apr. 25 Tr. at 124:18-125:25.) Carroll also understood that Salander had offered ...