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Dorothy G. Bender Foundation, Inc. v. Carroll

Supreme Court of New York, New York County

August 20, 2013

The DOROTHY G. BENDER FOUNDATION, INC. and John McEnroe, Plaintiffs,
v.
Joseph P. CARROLL and Joseph P. Carroll Limited, Defendants. No. 601375/20.

Editorial Note:

This decision has been referenced in a table in the New York Supplement.

Cooter, Mangold, Deckelbaum & Karas, L.L.P., Dale Cooter and Donna Mangold, of counsel, for plaintiffs.

Olshan Frome Wolosky LLP, Jeffrey Udell and Peter Sartorius, of counsel, for defendants.

SHIRLEY WERNER KORNREICH, J.

In 2004, Lawrence Salander, owner and operator of a prominent art gallery, entered into a venture with plaintiff John McEnroe to jointly purchase two paintings by Arshile Gorky known as Pirate I and Pirate II. Unbeknownst to McEnroe, at or around the same time, Salander also entered into a similar venture with Morton Bender to acquire the same two Gorky paintings. Salander bought the paintings at auction in Paris in 2004, but in late 2006, without the knowledge or permission of either McEnroe or Bender, conveyed one of the paintings, Pirate II, to defendant Joseph P. Carroll in exchange for two other works, one known as Black and White Variation on Pochade II (hereinafter Pochade ), by Stuart Davis, and the other called the Kabuki Tetrad by John Covert.

In 2010, Salander was convicted of grand larceny and incarcerated. John McEnroe and The Dorothy G. Bender Foundation, Inc. (the Bender Foundation) [1] settled their claims against each other and now seek the return of Pirate II and a declaratory judgment that they are the true owners of the work (second amended complaint, ¶¶ 55-71). Defendants, Caroll and Joseph P. Carroll Limited (together, the Carroll defendants), oppose, arguing that plaintiffs are bound by the acts of Salander and that Carroll, as a buyer in the ordinary course of business, has good title under the UCC. In addition, Carroll, individually, has counterclaimed for a declaratory judgment that he is the true owner of Pirate II (answer, ¶¶ 48-53).[2]

I. Findings of Fact

A bench trial was held before me at which John McEnroe and Morton Bender testified for plaintiffs, along with James Regan, an accountant for the Bender Foundation, Julie Dowden, Salander's ex-wife, and Victor Wiener, an art expert. Witnesses for the defendants were Leslie Ann Prouty, an employee of Sotheby's, Alex Rosenberg, and Carroll. Based upon the credible evidence, the court makes the following findings of fact.

A. The Pirate II Transactions

Larry Salander was known as an authority on American art of the first half of the twentieth century and operated the Salander-O'Reilly Galleries (SOG) in New York City, a gallery known as one of the great institutions in the world of modern art (Rosenberg, tr 879; Carroll, tr 687). He had a wide range of acquaintances, including plaintiff McEnroe, a professional tennis player, who had worked for him as an intern in 1992, and Bender, a businessman from Washington D.C., who he had known for thirty or forty years through his art dealings (McEnroe, tr 16; Bender, tr 130-31). Salander also knew defendant Joseph Carroll, an art dealer who, for the most part, dealt in art through defendant Joseph P. Carroll Limited, a New York corporation owned and managed by Carroll (Carroll, tr 682). Salander and Carroll met in 1991, and Carroll first purchased artwork from Salander in either 1998 or 1999 ( id. at 684). Over the years, Carroll bought between 120 and 150 works of art from Salander ( id. ).

In October 2004, the Tajan auction house in Paris was offering to sell a number of works from the estate of Julien Levy, including Pirate I and Pirate II. Prior to the auction, Salander met with McEnroe in Europe, where McEnroe had gone for a tennis event, and the two resolved to become equal partners in the paintings if Salander succeeded in acquiring them at the auction (McEnroe, tr 16-18). Salander attended the auction and purchased the works in the name of SOG (plaintiffs' exhibit 2). He informed McEnroe of his purchase, and the deal between them was documented by a letter from Salander to McEnroe's accountant at the time, dated October 13, 2004, which stated that the works were purchased for $4,069,660 (McEnroe, tr at 19; plaintiffs' exhibit 3). The paintings were to be sold " only" by SOG, with 50% of the proceeds to go to McEnroe, and neither was to be sold for less than $5 million without McEnroe's permission (plaintiffs' exhibit 3). On November 2, McEnroe wired $2,034,830 to SOG, his share of the purchase price (plaintiffs' exhibit 6). McEnroe took possession of Pirate I, leaving Pirate II with Salander (McEnroe, tr 30).

Meantime, prior to the auction, Salander also had contacted Bender, asking him to participate in the purchase of the Pirate paintings (Bender, tr 131). Bender agreed ( id. ). Upon Salander's return to the United States, Bender advanced $4,310,092 to Salander, which he was told represented the entire purchase price for the two paintings ( id. at 132; plaintiffs' exhibits 4 & 5). Of that amount, $2,155,046 was a loan to Salander covering his share of the purchase price, while the remaining half was to be Bender's equity investment (Bender, tr 134). Salander confirmed the arrangement with Bender by a letter dated November 2, 2004, the very same day he received McEnroe's wire transfer (plaintiffs' exhibit 5) .[3] A promissory note for the amount of the loan, dated October 14, 2004, was signed by Salander on behalf of SOG for the benefit of Bender personally, while a letter which bears a notary's certification dated December 20, 2004, states that ownership of the Pirate paintings would be split evenly between SOG and two foundations controlled by Bender, The Dorothy G. Bender Foundation and the Jeffrey D. Bender Foundation (plaintiffs' exhibit 7).[4] The court finds that this documentary evidence conclusively establishes that the plaintiff Bender Foundation held an equity interest in the two paintings ( see also The Dorothy G. Bender Found. v. Carroll, Sup Ct, N.Y. County, August 28, 2012, Kornreich, J., index No. 601375/2009, p. 20). Neither Bender nor McEnroe knew of the other's interest in the paintings (Bender, tr 143; McEnroe, tr 32-34).

In January 2006, Carroll gave SOG $665,000 and an untitled work by an artist named Gerald Murphy in exchange for twelve works from SOG (Carroll, tr 804, 780-81; plaintiffs' exhibit 8). Among the twelve works sold by SOG was Stuart Davis's Pochade (Carroll, tr 778; plaintiffs' exhibit 8). In April, after some work by his restorer, Carroll consigned Pochade to the Babcock Gallery, for an asking price of approximately $1.5 million (Carroll, tr 783). The work did not sell, and later that year, Salander persuaded Carroll that he would have more success selling Pochade through SOG ( id. at 785-86).

Accordingly, on September 21, 2006, Mr. Carroll visited Salander's gallery to consign three works of art for sale: Pochade, another work by Davis designated Standard Brand No. 2, and a third work, the Kabuki Tetrad, which, Carroll had acquired from SOG in 1999 in an exchange valued by the parties at $400,000 ( id. at 709, 756; plaintiffs' exhibit 1). The consignment agreements set minimum prices of $1.25 million and $1.2 million for Pochade and the Kabuki Tetrad, respectively (defendants' exhibits H & I). Under these agreements, Carroll would have received the greater of each work's minimum price or 80% of the total proceeds, leaving the residue to Salander (defendants' exhibits H & I). In other words, taking the Kabuki Tetrad as an example, Salander would keep every dollar of proceeds between $1.2 million and $1.5 million, and then would retain 20 cents of every dollar thereafter.

That same day, however, Carrol and Salander, instead of carrying out the consignment, swapped the Pochade and the Kabuki Tetrad for Pirate II, which Carroll had seen Salander purchase at the Tajan auction in 2004 and which was then hanging in Salander's gallery (Carroll, tr 710-11, 693). The arrangement provided a short window of time during which Salander could reacquire Pirate II, either by returning Pochade or the Kabuki Tetrad or by paying $1.25 million for each painting (plaintiffs' exhibit 10). Similarly, Carroll could reacquire the two paintings by returning Pirate II or paying $2.5 million ( id. ). This buy-back option was set to expire on October 30 ( id. ).

In their past dealings, Salander had done business with Carroll through SOG ( see plaintiffs' exhibits 1, 8). For this transaction, however, Salander told Carroll that his side of the swap would be performed for the benefit of his children in the name of an entity which Salander called " The Seven Salander Children Group" (the Group) and asked that the invoice be drawn up accordingly, with mail to the group to be sent care of Dowden, Salander's wife at the time (Carroll, tr 717-19; plaintiffs' exhibit 10). Carroll, who had never heard of the Group, claimed to have inquired of his lawyer whether it would be possible to determine whether the Group actually existed (Carroll, tr 827-29). He testified that he was told that the Group's existence would not necessarily be a matter of public record and, therefore, abandoned the inquiry; he did not ask Salander for any proof of the entity's existence, such as a trust agreement ( id. at 830). Dowden, to whom Group correspondence was supposedly directed, testified that she had never heard of the Group prior to Salander's bankruptcy in 2007 (Dowden, tr 119). Defendants now concede that the Group did not exist (defendants' brief 15-16).

Carroll drafted the invoice in accordance with Salander's wishes, signed it, and left it with Salander's gallery assistant on the afternoon of October 9 (Carroll, tr 720). He then took possession of Pirate II, which he delivered to his restorer ( id. at 720-21). The next day, he received a copy of the invoice signed on behalf of the Group ( id. at 723). Salander also gave Carroll a provenance statement for Pirate II, written on SOG stationery ( id. at 732). The statement made no mention of the Tajan auction and did not name the current owner (defendants' exhibit K). Carroll was not presented with any document indicating that the Group owned Pirate II ( id. at 827-28). Neither McEnroe nor Bender were informed of this transaction (McEnroe, tr 21-22; Bender, tr 143-44). For her part, Dowden denies ever receiving the October 9 exchange agreement supposedly addressed to her, and testified that she neither signed it nor recognized the signature on it (Dowden, tr 121-22).

The option period expired on October 30 without either party undoing the swap, thereby leaving Carroll with Pirate II and Salander with the other two works. However, some days later, in November, Carroll and Salander entered into another swap agreement, whereby Carroll exchanged two Davis paintings which he had consigned to SOG ( Graveyard on the Dunes and the aforementioned Standard Brand # 2 ) for the Kabuki Tetrad, one of the paintings he had traded for Pirate II the previous month (plaintiffs' exhibit 11; Carroll, tr 776). As before, each party could buy back the paintings they had relinquished by paying a certain amount: Carroll could reacquire the Davis paintings for each work's minimum price under their respective consignment agreements, i.e., $175,000 for Graveyard on the Dunes and $225,000 for Standard Brand # 2 (Carroll, tr 776; plaintiffs' exhibit 11). The Kabuki Tetrad, whose strike price in the October deal had been $1.25 million, could now be reacquired by Salander for $400,000 (plaintiffs' exhibit 11). Again, the option expired without being exercised.

B. Salander's Fraud Is Revealed

Some weeks later, in early 2007, Carroll consigned Pirate II to another art dealer named Asher Edelman, who was putting on his first art show (Carroll, tr 792). Word of Carroll's claimed ownership reached McEnroe, who demanded to speak with Carroll (McEnroe, tr 25). Carroll and McEnroe eventually spoke, and Carroll allowed McEnroe to view Pirate II ( id. at 28-29). Subsequently, to avoid litigation, McEnroe and his attorney approached Salander and offered to forego McEnroe's claim to Pirate II in exchange for Salander's share of Pirate I, which was in McEnroe's possession ( id. at 29-30). Salander accepted the offer and signed an agreement to that effect ( id. at 34-36, defendants' exhibit O). McEnroe still was unaware of Bender's interest in Pirate I (McEnroe, tr 36).

In late 2008, McEnroe consigned Pirate I to a show at a Paris gallery owned by Christie's, Haunch de Venison ( id. at 32-33). Subsequently, McEnroe was informed by Christie's that the work could not be returned to him as Bender had placed a lien on the painting ( id. at 33). The two spoke, and McEnroe informed Bender that Carroll was in possession of Pirate II (Bender, tr 306-08). Ultimately, Bender and McEnroe resolved to become equal partners in Pirate I and to try to gain control of Pirate II, which they also would share ( id. at 308-11).

C. Value of the Works

Both plaintiffs and defendants presented expert testimony on the fair market value of Pirate II, Pochade and the Kabuki Tetrad in 2006, the year in which Caroll exchanged the art with Salander. The experts agreed that Gorky was an American artist of great stature (Wiener, tr 392; Rosenberg, tr 904). Defendants' expert, Rosenberg, appraised Pirate II as having been worth $1.36 million in 2006 (Rosenberg, tr 900). This number was based upon an extrapolation from the average sales price of Gorky works within the five years preceding 2006 ( id. at 904-07). It was noted that this amount is less than what Salander paid for the work in 2004, but Rosenberg stood by his assessment, opining that Salander had overpaid at auction ( id. at 929). Moreover, Rosenberg discounted the rise in prices in the general art market between Salander's 2004 purchase and the 2006 exchange, insisting that while other sectors of the art market experienced a " robust" rise, the market for Gorky works remained static ( id. at 912-13). He supported this conclusion by noting that only two Gorky works were offered at auction between 2004 and 2006 and only one sold ( id. at 909, 913-14).

In contrast, Victor Wiener, plaintiffs' expert, placed the value of Pirate II in 2006 at $2.2 million (Wiener, tr 379). He arrived at this number by taking into account sales of other, comparable works, including sales which took place after 2006 ( id. at 374, 391). He testified that this " retrospective analysis" is an acceptable method of appraisal ( id. at 391). Additionally, he consulted a database known as the Mei-Moses Index, which, when provided with information about an artwork's category or previous sales price, will provide an estimate of its current value ( id. at 393-94). When, in 2011, Wiener inputted the data for the 2004 sale of Pirate II, the database returned a value of $2.1 million as of 2010, which Wiener thought was a good approximation of the art market in 2006 ( id. at 393-94, 604).

The experts also attempted to put a price on Davis' Pochade and Kabuki Tetrad, the Covert work. Wiener valued Pochade at $350,000, while Rosenberg valued it at $400,000 ( id. at 379; Rosenberg, tr 900). When appraising the Kabuki Tetrad, though, neither expert was able to rely on comparable sales data, since no Covert work had ever been publicly sold although some of his pieces are owned by a number of museums (Rosenberg, tr 938, 982-83). In other words, neither Wiener nor Rosenberg was able to employ the same methodology they used to appraise Pirate II in assessing the value of the Kabuki Tetrad. Rather, each witness based his valuation on other criteria. In Wiener's opinion, the value of the work was compromised by certain physical modifications done by Carroll, and he accordingly estimated a 2006 value of $50,000 (Wiener, 379, 418-20). Rosenberg, in contrast, placed the 2006 value of the Kabuki Tetrad at $1,000,000, taking into consideration the historical significance of the artist as one of the " forerunners of [ ] American modernism, the movement which led from [ ] European Cubism to American abstract expressionism," which movement included Man Ray, Charles Sheeler, Marcel Duchamp and Francis Picabia (Rosenberg, tr 938). He reached his appraisal by drawing on the prices commanded by the works by these well-known artists, even though Covert was not famous and had never sold, as well as the asking prices for the work when offered for sale by Caroll at various galleries, even though, again, the painting never sold ( id. at 939, 983-84). In the absence of any proven market for Covert's work, the court rejects both plaintiffs' and defendants' valuations as essentially subjective. There is simply no factual foundation for Wiener's or Rosenberg's respective appraisals of the Kabuki Tetrad. Instead, the court finds that while Gorky was an artist of great repute, whose works are eagerly sought by collectors and dealers and have sold for as much as $6.8 million (Wiener, tr 392), Covert, for all his historical significance, has no proven market history. Indeed, when placed on the market by Carroll, the work did not sell.

As to the Stuart Davis work, Pochade, the experts were not far apart on its value— $350,000 and $400,000, far less than the $1.25 million price in the Salander/Carroll swap.

II. Legal Standards

A. Power of Partner to Bind Partnership

Section 20 of the Partnership Law vests every partner in a partnership with actual authority to act on behalf of the partnership, and allows a third-party to presume that any partner acting on the partnership's behalf in its usual course of business has authority to do so (Partnership Law § 20[1] ). This is a mere codification of the common law rules of actual and apparent authority. However, " [a]n act of a partner which is not apparently for the carrying on of the business of the partnership in the usual way does not bind the partnership unless authorized by the other partners" ( id. at § 20[2] ). It, therefore, is all the more true that where a partner acts on behalf of some person other than the partnership, the partnership is not bound thereby (Schuckman v. Sayville Plaza Dev. Co., 201 A.D.2d 638, 639, 608 N.Y.S.2d 248 [2d Dept 1994] ).

B. Passing Title Under the Uniform Commercial Code

Sales of artwork are governed by the Uniform Commercial Code, which provides that a purchaser generally acquires only the title which the seller had (UCC 2-403[1] ). However, " [a]ny entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in the ordinary course of business" (UCC 2-403[2] ). " Entrusting" is defined as " any delivery ... of possession regardless of any condition expressed between the parties to the delivery" ( id. at 2-403[3, 608 N.Y.S.2d 248] ). The code defines " buyer in the ordinary course" as a person that buys in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course of buying from a person, other than a pawnbroker, in the business of selling goods of that kind. A person buys goods in the ordinary course if the sale to the person comports with the seller's own usual or customary practices ( id. at 1-201[9, 608 N.Y.S.2d 248] ).

While the code generally defines " good faith" as meaning " honesty in fact," when applied to the conduct of a merchant it also requires " the observance of reasonable commercial standards of fair dealing in the trade" ( compare UCC 1-201[19] with UCC 2-103[1][b] ). Given their knowledge of the practices of their trade, merchants or dealers, when acting as purchasers, are held to this " heightened standard" of commercial reasonableness in part to prevent them from shielding their purchase of stolen or misappropriated goods behind the assertion that they acted in good faith ( Davis v. Carroll, 2013 U.S. Dist LEXIS 45884 at *87 [SDNY 2013] ).

The leading New York case discussing an art dealer's obligation to adhere to commercially reasonable standards is Porter v. Wertz, 68 A.D.2d 141, 416 N.Y.S.2d 254 (1st Dept 1979) aff'd 53 N.Y.2d 696, 439 N.Y.S.2d 105, 421 N.E.2d 500 (1981). There, an art dealer purchased a painting from a certain individual without making any inquiries as to whether the seller owned the painting in question or was even an art dealer ( id. at 146,416 N.Y.S.2d 254). As it turned out, the seller was not an art dealer, but rather a delicatessen employee who, unbeknownst to the purchaser, was acting on behalf of another art dealer, who had no authority to sell the painting in question ( id. at 145-46, 416 N.Y.S.2d 254). Stating that " reasonable commercial standards of fair dealing in the trade' ... should not— and cannot— be interpreted to permit, countenance or condone commercial standards of sharp trade practice or indifference as to the ... right to possess or sell an object d'art," the Appellate Division held that in light of the purchaser's failure to take even the most basic steps to verify the seller's right to possession, the purchaser was not a " buyer in the ordinary course of business" under the UCC ( id. 145-46, 416 N.Y.S.2d 254). The claim that such willful ignorance was apparently the industry standard made little difference to the court, which found that " commercial indifference to ownership or the right to sell facilitates traffic in stolen works of art" ( id. at 149, 416 N.Y.S.2d 254).[5]

Hence, New York courts have held that under the UCC, a merchant purchaser may have a duty to inquire into the provenance or ownership of the merchandise where there are " warning signs" or " red flags" indicating problems with the sale ( Davis, 2013 U.S. Dist LEXIS 45884 at *89; Carroll v. Baker, 2012 U.S. Dist LEXIS 123107 at *30-*32 [SDNY 2012]; Kozar v. Christie's Inc., 31 Misc.3d 1228[A], 2011 N.Y. Slip Op 50887[U], *8 [Sup Ct, Westchester County 2011]; Brown v. Mitchell-Innes & Nash, Inc., 2009 WL 1108526 at *5 [SDNY 2009] ). Examples of such warning signs include a purchase price which is obviously below market, a sales procedure that differed from previous transactions between the two parties, or any other " reason to doubt the seller's ownership of the artwork" ( Carroll, 2012 U.S. Dist LEXIS 123107 at *30-*31 [citations omitted] ). An art dealer who proceeds to purchase artwork from another dealer in the presence of such red flags, without making a diligent inquiry as to the provenance of the work in question, will therefore not qualify as a " buyer in the ordinary course" whose title is protected by UCC 2-403(2).

III. Conclusions of Law

A. Plaintiffs' Title

The record shows that McEnroe and the Bender Foundation, acting separately and with mutual ignorance of the other's involvement, both entered into partnerships with SOG which acquired an interest in the painting Pirate II. They have each established, prima facie, their right and title to the work. Defendants argue, however, that as the partner of each plaintiff, SOG had the authority to convey title to Pirate II, and that plaintiffs cannot now challenge the binding effect of their partner's conduct (defendants' brief 13-16).

This argument fails for the simple reason that there is no evidence that when Salander sold Pirate II, he was acting in his capacity as a partner of either McEnroe or the Bender Foundation. Rather, Carroll claims that Salander purported to sell the painting on behalf of an entity called the Seven Salander Children Group. That the Group was a fiction does not matter. Like any other agent, a partner's act does not bind the partnership unless he is acting on the partnership's behalf ( Schuckman, 201 A.D.2d at 639, 608 N.Y.S.2d 248). Salander's act accordingly did not bind plaintiffs, and so this defense is dismissed.

B. Carroll's UCC Defense

Carroll nevertheless maintains that, as he acquired Pirate II from an art dealer to whom plaintiffs had entrusted the work, he holds good title under UCC 2-403(2). However, a number of aspects of the transaction are troubling. Most significantly, when Salander traded Pirate II for Pochade and the Kabuki Tetrad, the latter painting supposedly had a minimum price of $1.2 million (defendants' exhibit H; Carroll, tr 710). But when Carroll, an art dealer himself, reacquired the Kabuki Tetrad one month later, in November, he did so by trading it for two pieces whose aggregate minimum price was $400,000 (plaintiffs' exhibit 11; Carroll, tr 776) .[6] This discrepancy raises serious doubts as to whether Carroll's acquisition of Pirate II followed commercially reasonable standards.

That in each transaction the parties had the option (for a limited time) to unwind the deal does not explain this change. First, the court notes that neither party exercised the buy-back option in either of the deals. This despite the fact that Carroll testified that the Pirate II option period was kept to a short three weeks precisely because Salander did not want Carroll to have a longer opportunity to sell the Gorky, which would increase the risk of Salander losing the painting ( id. at 726, 608 N.Y.S.2d 248). In fact, even after trading the painting away, Salander apparently asked that Carroll consign Pirate II to him ( id. at 787-88, 608 N.Y.S.2d 248). Nonetheless, although he could have reacquired Pirate II simply by returning the works Carroll had given him and although he appeared to still believe that the painting could be sold, Salander allowed the option to expire. The court, therefore, must consider the strong possibility that the " options" were a sham and that what transpired in October and November 2006 were straightforward swaps.

Second, even assuming that the buy-back option was genuine the values implied by the supposed deal still make little sense. As noted, under the originally contemplated consignment agreement, Salander already stood to make $300,000 if the Kabuki Tetrad sold for $1.5 million. The upside for Salander in acquiring the Kabuki Tetrad was that if it sold for more than $1.5 million, he would capture all of those proceeds rather than merely 20%. In other words, the October swap only made sense if Salander believed that it was possible to make substantially more than $1.5 million from selling the Kabuki Tetrad, enough to justify ceding Pirate II to Carroll ( see id. at 710:16, 608 N.Y.S.2d 248). That being the case, it would have then been irrational for Salander to risk the Covert, which he apparently valued so highly, for the opportunity to make a few extra dollars from selling two paintings whose aggregate floor price was only $400,000. Indeed, Carroll's expert conceded that the November deal would have only made sense as a way of temporarily warehousing the Covert work, on the condition that it be reacquired later (Rosenberg, tr 947, 977), which, of course, Salander did not do.

Whether or not the buy-back option is taken into account, when Carroll exchanged the Kabuki Tetrad for Pirate II, a high value was attached to the Kabuki Tetrad ($1.2 million), and when he took it back a short time later, that value had plummeted ($400,000). Asked to explain this sudden change in value, defendants' expert evaded the question ( id. at 981-82, 608 N.Y.S.2d 248). The October exchange, and the price implied therein, appears even more suspect in light of the court's earlier finding that, compared with Pirate II, the Kabuki Tetrad was at best a speculative investment, as there is no record that any work by Covert has ever been sold. That Pochade was included in the trade does not make the October swap any more believable, as even Carroll's expert has opined that Pochade's fair market value was less than a third of Pirate II's. The court finds that these anomalies should have alerted Carroll, a sophisticated collector and an art dealer, that the October exchange was not commercially reasonable ( see Davis, 2013 U.S. Dist LEXIS 45884 at *120-22; Carroll, 2012 U.S. Dist LEXIS 123107 at *30-31).

In these circumstances, the irregularities presented to Carroll concerning Salander's title to the work take on a greater significance than they might have otherwise. In the view of Wiener, the news that Carroll would be buying Pirate II from the Group, as opposed to SOG, should have prompted him to investigate the purported seller's existence (Wiener, tr 504). As previously noted, the Group's sudden appearance apparently piqued Carroll's curiosity (or apprehension) and caused him to inquire of his lawyers whether the Group's existence could be ascertained. That Carroll's " curiosity was satisfied" upon being informed that its formation was not necessarily a matter of public record, is difficult to understand given that he had not clarified the status of the supposed seller. Carroll testified that he had been at the Tajan auction when Salander purchased Pirate II, yet he did not ask to assuage his curiosity by viewing the Tajan invoice, which would have shown that the painting was sold to SOG (plaintiff's exhibit 2).

Moreover, the provenance statement issued by SOG did not even list the Group, or, for that matter, anyone else, as the current owner of the work (defendants' exhibit K). The provenance statement ended with the Estate of Julien Levy, the seller at the Tajan auction. Carroll has testified that this raised no red flags for him, as he has never seen current owners listed on provenance statements (Carroll, tr 735). The court finds this testimony incredible since provenance statements supplied by Carroll include himself as the current owner of the work being conveyed ( see defendants' exhibit H & I). Further, in other transactions between Carroll and Salander in 2006 and 2007, Salander provided Carroll with provenance statements naming the current owner of the artwork being conveyed ( see Davis, 2013 U.S. Dist LEXIS 45884 at *17-*18; Carroll, 2012 U.S. Dist LEXIS 123107 at *12). While it may be true, as the parties' experts testified, that often provenance statements omit the name of the current owner (Wiener, tr 521; Rosenberg, tr 893), this apparently was not Carroll's usual or customary practice. In addition, the rationale offered by Carroll and his expert for a gallery omitting the name of a work's current owner, i.e., that dealers do not want to publicize the identity of their consignors for fear that buyers will cut the dealer out of subsequent transactions (Carroll, tr 734-35; Rosenberg, tr 893), would have been inapplicable here, as Carroll believed that Salander had told him who the owner of the painting was, namely, the Group and the Group consisted of Salander's own children. In sum, there was no credible reason for Salander to present Carroll with a provenance that, in the words of plaintiffs' expert, was " incomplete" (Wiener, tr 522). In Wiener's opinion, Carroll's failure to make the appropriate inquiries constituted a failure to perform the requisite due diligence ( id. at 452), and while Rosenberg disagreed with that assessment, even he limited the situations where it is acceptable for art dealers to buy without inquiring into the seller's title or authority to those situations where the buyer trusts the seller (Rosenberg, tr 886-87). Whether it was reasonable for Carroll to do so here is the precise question before the court.

On the foregoing record, the court concludes that in October 2006, Carroll acquired Pirate II in a grossly undervalued transaction in which he chose to make no inquiry as to Salander's authority to sell the work, despite behavior on Salander's part which marked a departure of their normal course of dealings. By going forward with the transaction despite these red flags, Carroll did not observe the reasonable commercial standards of the art trade, and therefore, as an art dealer himself, failed to qualify as a buyer in the ordinary course of business within the meaning of UCC 2-403(2). Accordingly it is

ORDERED that on the Second Cause of Action for Replevin, plaintiffs The Dorothy G. Bender Foundation, Inc. and John McEnroe are entitled to recovery of the painting referred to herein as Pirate II from defendants Joseph P. Carroll and Joseph P. Carroll Limited; and it is further

ORDERED that on the Third Cause of Action for Declaratory Relief, plaintiffs The Dorothy G. Bender Foundation, Inc. and John McEnroe are entitled to a declaration, and the court hereby declares, that their legal title to the painting referred to herein as Pirate II is superior to title claimed by defendants Joseph P. Carroll and Joseph P. Carroll Limited; and it is further

ORDERED that the First Counterclaim for Declaratory Relief of defendant Joseph P. Carroll against The Dorothy G. Bender Foundation, Inc., John McEnroe and Morton A. Bender is dismissed with prejudice; and it is further

ORDERED that plaintiffs shall submit a proposed order and judgment appropriate for replevin in accordance with the foregoing decision and order.


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