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Davis v. Carroll

United States District Court, S.D. New York

March 29, 2013

EARL DAVIS, Plaintiff,
v.
JOSEPH P. CARROLL and JOSEPH P. CARROLL LIMITED, Defendants. JOSEPH P. CARROLL and JOSEPH P. CARROLL LIMITED, Counterclaim Plaintiffs,
v.
EARL DAVIS, Counterclaim Defendant

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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For Earl Davis, Plaintiff: Christopher Jules Klatell, David Barry Goldstein, LEAD ATTORNEYS, Rabinowitz, Boudin, Standard, Krinsky & Lieberman, PC, New York, NY; Michael Lee Hertzberg, LEAD ATTORNEY, Michael Lee Hertzberg, New York, NY.

For Joseph P Carroll, Joseph P. Carroll Limited, Defendants, Counter Claimants: Jeffrey Adam Udell, Olshan Frome Wolosky LLP, New York, NY; Melanie Joan Sacks, Olshan, Grundman, Frome, Rosenzweig & Wolosky, LLP, New York, NY.

For Earl Davis, Counter Defendant: Christopher Jules Klatell, David Barry Goldstein, LEAD ATTORNEYS, Rabinowitz, Boudin, Standard, Krinsky & Lieberman, PC, New York, NY; Michael Lee Hertzberg, LEAD ATTORNEY, Michael Lee Hertzberg, New York, NY.

OPINION

J. PAUL OETKEN, United States District Judge.

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MEMORANDUM AND ORDER

This case arises from scandal in the elite world of New York's fine art galleries. Plaintiff Earl Davis entrusted artworks produced by his father, the influential American modernist painter Stuart Davis, to Salander O'Reilly Galleries (" SOG" ). Unbeknownst to Davis, SOG was caught in a vast web of unethical and illegal dealings that ultimately resulted in a criminal conviction. Before SOG's house of cards collapsed, its principal, Lawrence Salander, engaged in a series of major transactions with Defendant Joseph P. Carroll. Over four months in 2006, Salander purported to sell 44 artworks to Carroll--including eight Stuart Davis works, which are at the heart of this dispute. Davis has sued to recover those works. He argues that Carroll should have been alerted to signs of foul play and that Carroll's due diligence reflected the very sort of commercial indifference to legal rights that New York law refuses to tolerate. Carroll retorts that he had every reason to trust SOG and that his due diligence was more than adequate.

Davis has moved for summary judgment. He has also moved to strike Carroll's art industry expert and to sanction Carroll for spoliation or perjury. For the reasons that follow, Davis's motion for summary judgment is granted, his motion for sanctions is denied, and his motion to strike is granted in part and denied in part.

I. Background[1]

Jurisdiction of this action is based on diversity of citizenship pursuant to 28 U.S.C. § 1332(a)(1). Plaintiff is a citizen of New Jersey and Defendants are citizens of New York. The amount in controversy exceeds $75,000.

A. The Parties

Plaintiff Earl Davis is the only son of Stuart Davis (1896-1964), one of America's

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most celebrated modernist artists. Davis is the owner, through gifts received from his parents, of a large number of Stuart Davis paintings, works on paper, drawings, and sketches. Many of these works have not previously been sold. During the time period relevant to this case, Davis occasionally signed agreements on behalf of, and identified himself on provenance statements as, the " Estate of Stuart Davis." [2]

Defendant Joseph P. Carroll is an international museum curator, philanthropist, and private art dealer. He has been in the business of buying art for resale for nearly 35 years and includes American modernism among his areas of focus. Carroll purchased, sold, and consigned artworks from, to, and through New York art galleries during the 1990s and 2000s. Defendant Joseph P. Carroll Limited is a corporation formed under New York law. It is a legal entity through which Carroll conducted business for over twenty years; Carroll is its president and sole stockholder. Carroll Limited has been essentially dormant since 2010.[3] From 1990 to 2000, Carroll purchased over 1,000 works of art.

Lawrence Salander (a non-party) was the principal of Salander-O'Reilly Galleries (SOG) (also a non-party), which was considered one of the preeminent art galleries in Manhattan until late 2007. In November 2007, SOG's creditors commenced an involuntary case against it under Chapter 7 of the Bankruptcy Code and Salander filed for voluntary bankruptcy. In March 2009, SOG and Salander were indicted in New York County on 100 felony counts, including multiple counts of Grand Larceny in the first degree, for a series of fraudulent schemes perpetrated against, amongst others, Davis. On March 18, 2010, Salander and SOG pleaded guilty to approximately 30 felony counts, including a count of Grand Larceny in the first degree charging that they stole property from Davis valued in excess of one million dollars.

B. Davis's Consignment of His Stuart Davis Works to SOG

Stuart Davis died in 1964. His wife, Roselle Davis, died in 1994. During their lives, they gifted to their son, Earl Davis, many Stuart Davis works, including the works at issue in this case (collectively " the Eight Disputed Works" ). In the late 1970s or early 1980s, Davis met Salander at a Christie's auction. Soon after, in response to an open invitation from Salander, Davis proposed that they work together on a catalogue raisonné and Salander agreed.[4] As part of this deal, Salander undertook to bankroll the project and provide other forms of support.

In the early 1980s, Davis consigned to Salander his first Stuart Davis works.[5] Davis recalls that he " gradually became more comfortable with [Salander] and came to trust him increasingly." By around 1987, Davis had consigned a number

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of works for display at shows and possible sale. Davis and Salander agreed to four or five exhibitions over the course of the 1980s; each time, Davis generally took back most of the works that did not sell. In this stage of their relationship, Salander sold Stuart Davis works that Davis provided to him for exhibitions and that Davis left on inventory for sale.

In December of 1990, Davis and Salander signed an agreement providing that SOG would be the worldwide representative of the work of Stuart Davis for five years. At the end of this contract, Davis and Salander " had an ongoing oral understanding" that lasted through late 2007. Throughout this period, Davis was denoted in some of these agreements as " The Estate of Stuart Davis" because he owned a majority of his father's works. Ultimately, from the mid-1980s through 2007, Davis consigned the majority of the Stuart Davis artworks that he owned to SOG. At times, more than fifty of his Stuart Davis artworks were consigned to SOG.

Throughout this period, the terms of Davis's oral deal with SOG included an understanding that the gallery would contact him for an updated pricing before selling any art work or indicating an asking price. Thus, the gallery would regularly contact him, inquire about his asking price for a particular work that he had consigned, and then later inform him whether it was sold at or above that price or did not sell at all. In 2003, Davis discovered that SOG had sold one of his consigned works-- Drawing on Canvas for Punchcard Flutter --without informing him. Davis later learned that SOG had, in fact, been " doing it all the time." But as of late 2005 and early 2006, Davis did not know of this practice by SOG. Davis did not file any U.C.C. financing statements to publicize his consignment interest in works delivered to SOG.

C. Carroll's Acquisition of the Eight Disputed Works

1. Events Leading Up to the 2006 Exchanges

Carroll first met Salander in 1991 and completed his first art transaction with Salander in 1998. Between January 1998 and December 2005, Carroll and SOG engaged in a number of art transactions. Carroll estimates that, in total, Carroll Limited purchased approximately 120 works of art from Salander or SOG and sold approximately 40 works of art to SOG. He adds that " almost all of Carroll Limited's purchases from SOG between 1998 and 2007 involved groups of art exchanged for both art and money." One such deal, which was finalized on January 26, 1998, involved Carroll exchanging 33 artworks--three watercolor/crayon works, 17 Middletown watercolors, and 13 drawings--for three paintings owned by SOG.

In 2000 and 2001, Carroll purchased five Stuart Davis works from SOG. Carroll states that, at the time, he believed that SOG owned these works. He explains that the provenance statements " indicated that the works had been transferred from 'The artist; to present owner,' which [Carroll] understood to be SOG." When asked about these transactions in his deposition, however, Carroll stated that " [SOG] at this point represented the estate. Whether [the art] was owned by the estate or owned by [SOG], I don't know."

Davis disputes these statements by Carroll and argues that Carroll knew in 2000-2001 that the Stuart Davis works he purchased from SOG were owned by Davis or by the Davis Estate, and not by SOG. Davis notes that some of the documentation produced as part of the 2000-2001 deal listed " Estate of the Artist" as the provenance, not " to present owner." Further, whereas works that Carroll sold to

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SOG were listed as " owned by" Carroll, the Davis Works were listed as " sold by" SOG. In subsequent documents related to these works, Carroll cited publications that listed Earl Davis as their owner and, when Carroll resold two of these works in June 2002, he prepared documents listing the provenance as " The artist and his estate, 1916-2000/(Sold through [SOG]/The Honorable Joseph Carroll New York 2000-)."

Separate and apart from the question of ownership of the works exchanged in 2000-2001, Carroll knew in 2000 and remained aware in the fall of 2005 that SOG represented the Davis Estate. The relationship between Davis and SOG was common knowledge in the art world.

In these and other transactions, Carroll created his own documentation and did not rely exclusively on the documentation provided by SOG. Whereas Davis describes this habit as evidence that Carroll distrusted the quality and accuracy of SOG's documentation, Carroll describes it as part of his standard practice designed to secure certain legal rights and to account for the apparent absence of " centralized protocol" at SOG for generating documentation.

Davis and Carroll sharply dispute the course of events involved in a transaction between Carroll and SOG in late 2005 that, in Davis's view, put Carroll on notice that SOG was dealing in fakes and was short on cash.

As Carroll recalls this course of events, on September 28, 2005, he entered into a fixed price consignment/purchase agreement with SOG, whereby Carroll consigned two paintings to SOG for a fixed net price of $525,000. Specifically, Carroll consigned Marsden Hartley's Still Life: Leathery Leaves and Albert Pinkham Ryder's Homeward at Twilight . On October 19, 2006, Carroll Limited filed a U.C.C. financing statement publicizing its interest in both works and its consignment of them to SOG. Under the terms of this deal, SOG had the option either to return the two works on December 28, 2005, or to purchase both works outright for a combined $525,000, payable in two installments--the first of which would be $175,000 due on December 28, 2005. Then, in early December 2005, Carroll contacted Deborah Rothschild of the Williams College Museum of Art to discuss inclusion of Gerald Murphy's Yellow Rose in an exhibition. Carroll had acquired Yellow Rose from Salander in 2003 at a nominal value of $125,000. Rothschild informed Carroll that, in her view, Yellow Leaves had been painted by Murphy's wife--an opinion that, even if not widely accepted, could substantially decrease the work's value. Carroll brought the matter to Salander, who vehemently disagreed with Rothschild's accusation. Nonetheless, as an accommodation to the potential loss of value, Salander allowed Carroll to exchange Yellow Rose for a merchandise credit of $150,000. As part of this exchange, Carroll extended SOG's consignment/purchase option for Leathery Leaves and Homeward at Twilight to January 25, 2006, though if SOG exercised its purchase option the full payment amount would be due on the date of purchase (January 25, 2006). Salander exercised his purchase option and finalized the deal on January 24, 2006. Carroll affirms that he " subscribed, and continue[s] to subscribe to Ms. Rothschild's opinion that the issue was a simple case of honest misattribution by the Gerald Murphy Estate, which SOG and Salander represented." He saw nothing unusual about his arrangement with Salander and, in his own words, " would not have risked [his] capital in dealing with Salander and SOG if [he] had any indication that they were engaged in any questionable activities or experiencing any financial difficulties."

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Davis disputes this characterization of these events. He argues that the purported Murphy painting was " obviously" a fake, that SOG was suspected of dealing in fakes in early 2006, and that SOG's inability to make a December 28, 2005 payment on the consignment/purchase agreement put Carroll on notice of SOG's shaky financial situation.

On November 30 and December 1, 2005, two Stuart Davis works sold for record amounts at Christie's and Sotheby's ($4.5 million and $3.152 million, respectively). In response, Davis called Salander to put a freeze on all sales pending a reevaluation of all list prices, but Salander did not answer Davis's calls for several days. Salander thereafter called Davis to report a sale of four Stuart Davis artworks, even though their arrangement provided that Davis would provide final approval for any such sales. Davis was furious. Ultimately, Davis " told [Salander] to suspend all sales pending his return of the works to me before we had any further discussion between him and me." Salander agreed to suspend sales and return Davis's artworks. He also agreed to Davis's demand for payment. Starting in January 2006 and continuing through the next two years, Davis regularly and aggressively pressured Salander to return all of the works that Davis had placed on consignment. Salander kept promising to do so, but always found an excuse to delay.

2. The 2006 Transactions

As of December 2005, Carroll still had $150,000 in merchandise credit at SOG as a result of the Yellow Rose incident. In early January, Carroll visited the gallery and browsed several floors worth of art. Carroll did not consult the price list, but did condition his stated interest in certain works on their price. Around this time, Salander expressed to Carroll his desire to pull out of the modernist area and focus on old masters, adding that " We'll have an end of year 90 percent off sale." Carroll describes this statement as a joke and notes that " we both laughed." Davis views it as a red flag that Salander was dumping works at bargain basement prices.

Carroll returned on January 6, 2006 and commenced a series of overlapping transactions that ultimately were finalized in a single " Summary Exchange Agreement" on May 22, 2006. In these exchanges, Carroll and SOG cross-exchanged cash and numerous artworks. Carroll's primary interest was to acquire Stuart Davis artworks; he recalls thinking that " I am doing this transaction because of the Davises." The 2006 Exchanges were memorialized in a series of " Exchange Agreements" prepared by Carroll. SOG sold 44 artworks by 12 artists to Carroll, including 16 Stuart Davis works. The parties have focused on 15 of those Stuart Davis works (" the Fifteen Davis Works" ), though Davis seeks only the return of (or damages for) eight of those works (" the Eight Disputed Works" ). In the 2006 Exchanges, SOG's asking price for the 44 works was $2,590,000 and its asking price for the Fifteen Davis Works was $1,445,000. SOG also gave Carroll $300,000 in cash. In exchange, Carroll gave SOG five artworks, a photograph, and $1,715,000 cash.

Carroll reports that the general price and exhibition histories of these works were well known to members of the American art dealing community. He states that in his negotiations with Salander, for each work Carroll either proposed a blanket 40-percent discount off SOG's December 2005 Miami-Basel published list prices or asked Salander " what he wanted." There were no negotiations over individual asking prices, but Carroll was free to accept or reject any individual artwork as part of the overall negotiation in creating these cross-exchanges. Deals on works

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and prices were struck quickly during these negotiations; Carroll recalls that he was " typically able to decide within minutes which artworks [he] was willing to purchase."

The executed agreements, including the Summary Exchange Agreement, did not set forth prices for the individual artworks. Carroll, however, prepared separate documents that contained the individual prices agreed to by Carroll and Salander. In his declaration, Carroll characterizes these listed prices as " SOG's offering prices . . . for each separate work" that he maintained as a guide for their future pricing. In his deposition, however, Carroll repeatedly described these notations as the actual, agreed-upon purchase prices. He stated that " [w]hat I would do is write down the name and write down the price that we agreed on," that these documents " give[] the breakdown on the pricing of the individual items which I did buy," and that " what I do have are the transcribed documents, which is what the price is." [6]

Carroll explains that, throughout these transactions, he believed (and was justified in believing) that SOG owned the Stuart Davis works or had authority to sell them. This confidence, in Carroll's view, was justified by two undisputed facts. The first is that it was well known in the art industry at the time that SOG was the exclusive representative for Stuart Davis works and that SOG maintained a well-established relationship with Davis. The second is that, prior to 2007, Salander enjoyed a golden reputation in the art business. Salander was particularly well known for his influence in the market for American Modernist artworks and had recently moved his gallery to a multi-million dollar mansion in Manhattan's Upper East Side. Multiple news reports and profiles confirmed Salander's status as a giant of the field.

The 2006 Exchanges occurred in two waves: one in January and February, the other in April and May. Davis argues that certain documentation produced during these transactions, as well as certain other events, reveal that Carroll was on notice of foul play at SOG.

a. January and February 2006

Carroll and SOG undertook four exchange agreements in January and February 2006. These exchanges are summarized in an " Exchange Agreement" dated February 10, 2006, and covered eighteen artworks by ten artists (including five Stuart Davis works, only four of which are at issue in this case).

In the documents produced by Carroll and Salander in connection with these agreements--dated January 6, January 11, January 24, and February 10--the works transferred from SOG to Carroll are all described as " owned by Salander-O'Reilly Galleries" (emphasis added). Separate from this statement of ownership, Carroll received no documentation confirming that SOG owned the Davis works, Salander never told Carroll that SOG owned the Davis works, and Carroll never asked Salander whether SOG owned any of the disputed Davis works. The provenance statements provided by SOG to Carroll for the four Davis Works included in the January/February exchanges all listed " Estate of the Artist" as the operative provenance. In contrast, Carroll received provenance statements for three non-Davis works purchased from SOG in these exchanges that did identify SOG as the current or prior owner, as well as a provenance statement

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for a fourth work that identified Salander and Salander's wife as the owners.

Carroll explained that he " assumed that the owner was actually probably, you know -- actually, I assumed that the owner was probably -- to the -- was probably Salander." This assumption, he added, rested on the fact that Salander had announced his desire to clear out American Modernist works and the fact that Salander could easily have returned to their owners any artworks held on consignment. Since it would have been so easy to clear out works on consignment, and Carroll knew that SOG maintained works on consignment from Davis, Carroll thought Salander owned the Stuart Davis works exchanged in January and February 2006. Carroll did not inquire of Salander at this time whether SOG owned the works or held them on consignment.

b. Developments from February 10, 2006 to April 14, 2006

On April 10, 2006, Carroll spoke with John Driscoll of Babcock Galleries while preparing to consign to Driscoll a group of works acquired from Salander. Carroll describes Driscoll as " a leading figure in the American art field." Driscoll informed Carroll that SOG Director Leigh Morse had " told [Driscoll] that the work that [Carroll] had didn't come from the estate but, rather, came from Earl Davis personally." Carroll understood Driscoll to be saying that the works that he (Carroll) had purchased from SOG were from Davis's personal collection.

Carroll then raised the issue of ownership with an SOG employee named Erin Fitzpatrick. Carroll states in his declaration that " Mr. Fitzpatrick advised me that the provenance statements SOG provided at the time of Carroll Limited's purchases were correct, that the five Stuart Davis works I had purchased from SOG in January-February 2006 had come from the 'Estate of the Artist,' and that he understood that the 'Estate' was Davis." Carroll reports that he saw no cause for concern regarding SOG's propriety in this fact because it was " widely publicized that SOG was the exclusive representative of the Estate of Stuart Davis." Carroll adds:

However, I did not understand how an individual and an " Estate" could be one and the same, and I noted that a distinction was made in the literature I had seen between the " Estate of Stuart Davis" and Davis. I therefore decided to follow Dr. Driscoll's suggestion to modify the provenance statements in my own cataloguing of my SOG Davis purchases to:
The artist and his Estate; to George Earl Davis, his son; to The Honorable and Mrs. Joseph P. Carroll, New York, New York (Acquired directly from the above through Salander-O'Reilly Galleries LLC, New York, New York) and to submit this revised cataloguing to the Stuart Davis Catalogue Raisonné Committee for verification.

According to his declaration, Carroll also asked Fitzpatrick to clarify whether the proper counter-party to his transactions was " Salander O'Reilly Galleries LLC," " Salander-O'Reilly Galleries, Inc.," or " Salander O'Reilly Galleries." Fitzpatrick clarified that the correct counter-party was " Salander O'Reilly Galleries LLC" and that the earlier documentation was mistaken. Carroll and SOG decided to rectify this mistake by restating the January-February transactions in a later transaction memorialized in corrected paperwork.

In his deposition, Carroll offered a slightly different account. He indicated that when he spoke to Fitzpatrick about the ownership issue raised by Driscoll, Fitzpatrick " never actually gave [him] an

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answer." He recalled " getting conflicted documentation" and " not getting a clear answer either from Salander or from [Fitzpatrick]." He noted that " no one is confirming them that they are from the estate or from Earl Davis. I am just being told again that they are -- you know, they are selling this stuff . . . So I really don't know." Carroll did not inquire as to why SOG had prepared and then signed documentation indicating that it " owned" the Davis works.

On April 19, 2006, Carroll consigned to Babcock Galleries two of the Davis works that he had obtained from SOG in 2000-2001. Carroll included provenance statements that he prepared stating: " The artist and his Estate/George Earl Davis, his son/The Honorable Joseph P. Carroll, New York, New York, 2000-/ (Acquired directly from the above through [SOG])." Driscoll (of Babcock) explained in his deposition that " [t]he way I would read that provenance is this was acquired by Mr. Carroll from [SOG] who would have been representing the son, George Earl Davis." Driscoll added that " what Mr. Carroll is asserting on his provenance is that he acquired the painting through [SOG], so that would be an assertion that [SOG] did not own it, and you can't list somebody in the provenance who didn't own it." Six days later, Carroll consigned to Babcock another Davis work-- Tobacco Fields, Tioga, Pennsylvania --which Carroll had acquired from SOG in January 2006. In the Carroll-SOG documentation, this work was identified as " owned by [SOG]." In the provenance prepared by Carroll for Driscoll, the work was identified as " The artist and his Estate/George Earl Davis, his son/The Honorable Joseph P. Carroll, New York, New York, 2000-/ (Acquired directly from the above through [SOG])."

c. April and May 2006

On April 25, 2006, Carroll acquired 15 more works from SOG, including four more Davis works. On May 22, 2006, Carroll acquired 11 more works, including seven more Davis works. On that same date, Carroll prepared the Summary Exchange Agreement, listing 40 artworks, including 11 Davis works, that Carroll had obtained from SOG between January and May 2006. In this Agreement and accompanying documentation, Carroll described all the works as " sold by" SOG, even the 18 works, including four Davis works, that his own documentation had previously identified as " owned by" SOG.

On May 22, Carroll also prepared an Exchange/Buy Back Agreement in which he obtained four more Davis artworks from SOG. Documents prepared in connection with this transaction described the Davis works as " exchanged by" SOG.

One of the Davis Works that Carroll acquired from SOG on May 22 was Standard Brand No. 2 . Driscoll had tried to purchase that work earlier in May 2006, but was told by Morse that Davis did not want that piece to be sold and that SOG therefore could not sell it. Driscoll learned of the sale just a few days after May 22 and expressed to Carroll " outrage and betrayal" because he " felt that [he] had been jerked around by [SOG] and possibly by Leigh Morse who I trusted, and by Earl Davis." Driscoll indicates that he " did not fault Mr. Carroll for acquiring the picture. I felt there was fault elsewhere in having it taken away from me in the midst of a transaction." Carroll recalls that Driscoll " said to me, that [Morse] came back and said that the piece belonged to Earl Davis, that he did not want to sell it." Carroll explains that he " thought it was just a story being given to Mr. Driscoll where basically they decided not to give him one piece but to unload other pieces which they couldn't sell because he needs it for his gallery."

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None of the provenance statements for any of the Fifteen Davis Works included in the May 22 Summary Exchange Agreement--including the statements for the four Davis works restated from the January-February transactions--identified SOG or Salander as the owner. Fourteen of the fifteen Davis Works were identified in pre-2006 publications as owned by " Earl Davis" or " the Estate of the Artist." None of the Eight Disputed Works were identified in any of these previous publications as being owned by SOG or Salander, and many of these publications were cited in the SOG provenance documents provided to Carroll and in Carroll's 2006 sale and consignment documents. Carroll did not ask Salander when or how SOG had acquired the large number of artworks from its own clients involved in these transactions. Nor did Carroll contact Davis to confirm his assumption that SOG owned the Fifteen Davis Works.

d. Pricing of the Artworks

Although the parties mostly agree on how much Carroll paid for each artwork, they heavily dispute whether these prices were so low as to constitute " bargain basement" deals.

Davis argues that the " bargain basement" prices that Carroll paid for the Stuart Davis works should have put him on notice of foul play in the 2006 Exchanges. Davis is supported in this argument by two experts. The first expert, Elin Lake-Ewald, employed a market comparison approach to conduct a fair market value appraisal of each of the Davis artworks at issue in this litigation (" the Ewald Report" ). Ewald conducted her fair market value appraisal prior to the commencement of the lawsuit and without any information about the 2006 Exchanges. Her appraisals reflect the value of each work in January to May 2006. The Ewald Report notes that " [t]here has been a strong and rising market for American Modernist work in recent years," and that " [t]he market for work by Stuart Davis was robust in 2006." Davis's second expert, Debra J. Force, offers an opinion on the commercial reasonableness of the 2006 Exchanges in light of art industry norms (" the Force Report" ). She concludes that multiple red flags, including price, should have led Carroll to conduct a more thorough inquiry:

There are numerous examples that demonstrate that the prices at which Carroll obtained the Davis works were too good to be true. Given the significantly low sale prices, the absence of any basis to believe that SOG was the owner of the works, [and] Salander's statements that he was having a clearance sale on American Modernists, Carroll, who was particularly knowledgeable about the market value of American Modernists, including Stuart Davis, was obliged to obtain assurances that SOG either owned the works or that the owner had authorized the sales at these prices.

The Force Report identifies " [s]ome examples that show that the prices were sufficiently low to have put Carroll on notice that the proposed Transactions were at best highly questionable, especially given the other circumstances of the Transaction."

Carroll " vigorously dispute[s] this assertion" by Davis and Davis's experts. He states in his declaration that " SOG's pricing for the Eight Disputed Works was fully consistent with what SOG had been asking for the works for several years, both at SOG and multiple other venues where they remained unsold, establishing them as being overpriced works, stale in the marketplace, and overpriced." Carroll states that in his experience, " a seller's consignment price is an asking price for

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sale, and does not equate to 'fair market value,'" adding that " a dealer purchasing art pays less than fair market value."

Davis's first examples of questionable pricing are Pochade I and Pochade II . These works are of equal value. Carroll states that he declined to purchase Pochade II at SOG in early January 2006, but changed his mind after a conversation in which Driscoll persuaded him that Pochade II was far more significant as an example of Stuart Davis's black-and-white works--and thus far more valuable--than SOG's cataloguing suggested. Driscoll told Carroll that he had recently purchased a Stuart Davis black-and-white work for $500,000, and that this work was now on display at Babcock Galleries with an asking price of $2 million. Carroll states in his declaration that, after his talk with Driscoll, he called Salander and offered to purchase all unsold Stuart Davis black-and-white works that SOG had exhibited at Art Basel at the same 40% discount that Driscoll had received off the price list.[7] Carroll Carroll indicates that Salander agreed and sold the Pochades to Carroll for $300,000 each. Carroll notes that he understood this to be the second highest recorded price for a Stuart Davis black-and-white painting and thought it was " reasonable and consistent with their prior sales and price history."

Carroll states that, as a condition of SOG's sale of Pochade II on " January 12, 2006," Salander requested that Carroll consign it back to SOG for an exhibition organized by Steve Harvey, an SOG employee, and that Carroll agreed to this request. The consignment agreement, dated " 11 January 2006," indicates that Carroll consigned Pochade II back to SOG the same day that he purchased it for $300,000--before any re-cataloguing or re-identification--and that this consignment was conditioned on $750,000 minimum net to Carroll in the event of sale. Carroll notes that after he took delivery of the Pochades in April 2006, he " had them restored and [he] recatalogued them . . . completely changing their meaning and significance." He consigned them to Babcock Galleries for a price of $1.2 million.

Carroll states that he then learned that Leathery Leaves, one of the works that were part of his $525,000 consignment to SOG, was being exhibited by another dealer for $1.8 million. He reports that Salander informed him that he (Salander) had identified Leathery Leaves as a 1917 piece by Marsden Hartley, not a circa 1920-1924 piece. Carroll asserts that he struck a new deal with Salander, involving Leathery Leaves, in which " we both understood that the actual consideration I was giving SOG for the purchase of Pochade II and other works was $1,450,000 more than originally contemplated owing to the increase in consideration for Leathery Leaves ."

Carroll indicates that on October 9, 2006, he executed an Exchange/Buy-Back Agreement with a group represented by Salander and SOG, " under which [he] exchanged two works-- Pochade II and Kabuki Tetrad by John Covert[]--in exchange for [ Pirate II ] by Arshile Gorsky." He states that, " [f]or purposes of this buy-back option, the [ Kabuki Tetrad ] and Pochade II were each assigned a strike price of $1,250,000 and Pirate II was assigned a strike price of $2.5 million." Carroll adds that before the buy-back option expired, he entered into another deal with Salander under which two other Stuart Davis works-- Graveyard in the Dunes and Standard Brand #2 --were exchanged with SOG for Kabuki Tetrad plus a 30-day

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buy-back option. For purposes of this option, the strike prices were $175,000 for Graveyard in the Dunes, $225,000 for Standard Brand #2, and $400,000 for Kabuki Tetrad . Carroll does not explain why Kabuki Tetrad was assigned a strike value of $1.25 million in one transaction and then a strike value of $400,000 in a subsequent transaction; the Force Report describes these " extraordinary fluctuating values over a few weeks" as " highly troubling and irregular in art world practice." To the extent that Carroll valued Kabuki Tetrad at less than $1.25 million, it would follow that Carroll valued Pochade II at an even greater price while exchanging those two works for Pirate II, a work he valued at $2.5 million.

Davis points out that Carroll paid $300,000 for each of the Pochades and then, by Carroll's own account, valued just one of the Pochades at $1.25 million just a few months later while exchanging it and Kabuki Tetrad for Pirate II . Further, Carroll has stated in two other cases, one in this District and the other in state court, that the value of Pochade II in October 2006 was $1.25 million. These statements are corroborated by the fact that Carroll consigned the two Pochades for $1 million each minimum net in July 2006, consigned Pochade II for $1.25 million minimum net in September 2006, and then consigned Pochade I for $1.5 million minimum net in November 2006. Indeed, when Carroll consigned Pochade II back to SOG immediately after purchasing it, he consigned it for $750,000 minimum net payable to Carroll (or, in the alternative, for $500,000 plus 50% of sales proceeds over $500,000). The Ewald Report concludes that the fair market value of each Pochade would have been $1 million as of the time Carroll acquired them. Thus, Carroll paid $600,000 total in the 2006 Exchanges for two works valued by an expert appraiser to have been worth $2 million at the time and valued by Carroll himself at roughly $2.5 million just a few months later.

In a related vein, Davis notes that Carroll purchased Graveyard on the Dunes for $50,000 in April and Standard Brand No. 2 for $100,000 in May as part of the 2006 Exchanges. As stated above, Carroll later exchanged these two works for Kabuki Tetrad, assigning strikes prices of $175,000 to Graveyard in the Dunes, $225,000 to Standard Brand #2, and $400,000 to Kabuki Tetrad . Carroll's shifting valuations of Kabuki Tetrad --from $1.25 million in one transaction to $400,000 in the next--indicate that he valued the combination of Graveyard on the Dunes and Standard Brand No. 2, recently acquired from SOG for a total price of $150,000, at some price ranging from approximately $400,000 to approximately $1.25 million. The Ewald Report indicates the following fair market value appraisals as of the time of the 2006 Exchanges: Graveyard on the Dunes at $450,000 and Standard Brand #2 at $200,000.

Carroll explains this discrepancy by stating that he re-catalogued the Pochades and thereby added an unspecified amount of value. Specifically, he states that he recatalogued them " in line with the 1985 Black and White exhibition catalogue as 1958-1964 creations, completely changing their meaning and significance." However, as Davis points out, while the January 11 cataloguing provided to Carroll by SOG dates a Pochade to " c.1956-58," the April 21 cataloguing from SOG dates a Pochade to " c.1958-64." Further, the SOG cataloguing given to Carroll for both Pochades listed the very same 1985 Black and White exhibition catalogue, which dates both Pochades to " ca. 1958-1964" and which was based on an SOG exhibition. Several other scholarly works and exhibition catalogues also dated the Pochades to 1958-1964, including Davis Catalogue Raisonné

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working papers created in 1996. Carroll does not address those materials or identify any independent novelty in his re-cataloguing of the Pochades that would explain the significant increase in value he attributes to his efforts.

Davis's second and third examples of " bargain basement" prices consist of two out of a set of four artworks that Carroll bought as a group from SOG in May 2006 for $210,000 and then resold to SOG in October 2006 for $650,000. The four works were Drawing for Matches, Egg Beater No. 1, Drawing for Percolator, and Art Digest Cover . Davis singles out two of these works for careful scrutiny: (1) Drawing for Matches, which was purchased by Carroll for $20,000 in May, sold to SOG in the $650,000 transaction, returned to Carroll in Fall 2006, and then sold to the Chrysler Museum for $148,000 in December 2007; and (2) Study for Eggbeater No. 1, which was purchased by Carroll for $45,000 in May, sold to SOG in the $650,000 transaction, returned to Carroll in the fall of 2006, and sold by Carroll to a private collector for $250,000 in March 2008.

Carroll explains that he " added value to [ Drawing for Matches ] by re-identifying and re-cataloguing it." Specifically, he states that he " purchased the work Drawing for Form Study, 1927, and it was as Drawing for Matches, 1927, with my revised cataloguing that it was sold to The Chrysler Museum of Art." Carroll notes that in May 2006, SOG consigned this work to Babcock Galleries as Drawing for Form Study, 1927, for a net price to SOG of $28,000, and that he offered $20,000 to Salander after learning that Driscoll had no interest in purchasing this work at SOG's $28,000 net price.

In response, Davis observes that the provenance created by SOG during the 2006 Exchanges listed the title as " Drawing for Form Study (aka Drawing for " Matches" )" and included a 1927 date. That cataloguing cites a reference text, Karen Wilkin's Stuart Davis, that includes this work under Drawing for Matches and that was also cited in Catalogue Raisonné working papers created in 1996 that identify the primary title of the work as Drawing for Matches (with an alternative title of " Study for 'Form Study' " ). The final version of the Catalogue Raisonné, published in October of 2007, lists the work as Study for " Matches" and identifies Drawing for Form Study and Drawing for " Matches" as " other known titles."

Regarding Egg Beater No. 1, Carroll states that he bundled it with three of Davis's seminal works in the final sale and that, having restored and reframed these drawings, he consigned them " as a three work triptych of Stuart Davis's most important early works, for an asking price of $450,000." He argues that this justified the increased sale price.

The Ewald Report appraises the fair market value of Drawing for Matches as of the 2006 Exchanges at $120,000. With respect to the other three works included in the $210,000 purchase/$650,000 resale transaction, the Ewald Report indicates fair market appraisal values of $120,000 for Drawing for Percolator, $225,000 for Egg Beater No. 1, and $225,000 for Art Digest Cover. This report thus provides a $690,000 total appraisal value as of 2006 for the four works that Carroll purchased at that time for $210,000.

Davis's fourth example of a " bargain basement" price is Drawing for a Report from Rockport, which, according to Davis, Carroll purchased for $75,000 in February 2006 and then sold through a gallery in January 2007 for $225,000. Carroll indicates that he sold the work for $175,000, but ...


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