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