United States District Court, S.D. New York
FRANK J. FERTITTA III and EYKYN MACLEAN, LP, Plaintiffs,
KNOEDLER GALLERY, LLC d/b/a KNOEDLER & COMPANY; 8-31 HOLDINGS, INC.; MICHAEL HAMMER; ANN FREEDMAN; JAIME ANDRADE; GLAFIRA ROSALES; JOSÉ CARLOS BERGANTIÑOS DIAZ; JESUS ANGEL BERGANTIÑOS DIAZ; OLIVER WICK; URS KRAFT; and JOHN DOES #1 to 10, Defendants.
OPINION AND ORDER
J. PAUL OETKEN, District Judge.
Plaintiffs Frank J. Fertitta III and Eykyn Maclean, LP ("Eykyn") bring this action against Knoedler Gallery, LLC ("Knoedler"); 8-31 Holdings, Inc. ("8-31"); Michael Hammer; Ann Freedman; Jaime Andrade; Glafira Rosales; Jose Carlos Bergantiños Diaz ("Jose Diaz"); Jesus Angel Bergantiños Diaz ("Jesus Diaz"); Oliver Wick; Urs Kraft; and ten unidentified individuals. Plaintiffs allege causes of action arising under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962, et seq., several tort claims, and claims for rescission and breach of warranty. Andrade and Kraft have moved to dismiss the action in its entirety under Federal Rule of Civil Procedure 12(b)(6), and Wick has moved to dismiss part of the complaint under Rule 12(b)(6). Plaintiffs have moved for leave to amend the Amended Complaint in the event that the Court finds their allegations against Andrade to be insufficient. For the reasons that follow, Andrade's and Wick's motions to dismiss are denied in their entirety; Kraft's motion is granted in part; and Plaintiffs' motion to amend is denied as moot.
In 2008, Fertitta bought a painting for $7.2 million. He thought it was painted by Mark Rothko in 1959, purchased by "Mr. X, " an anonymous Swiss art collector, shortly thereafter (¶ 89), and bequeathed to his son, "Mr. X, Jr." (¶ 85.) Fertitta thought he was buying the painting from Mr. X Jr., who, in order to remain anonymous, did business through Kraft, an attorney in Switzerland. Wick, a world-renowned Rothko expert, advised Fertitta on the provenance of the painting, confirming that "all is perfectly fine." (¶ 94.) For this Wick "st[ood] with [his] name as a Rothko scholar." ( Id. ) That turned out to be a mistake. The painting was actually painted by Pei-Shen Qian, a Chinese-born artist living in Queens, and sold by Rosales, a gallerist in Long Island who dealt-until her recent criminal conviction-almost exclusively in specious artworks. (¶ 29.) And there is no Mr. X.
The purported 1959 Rothko sold to Fertitta- Untitled (Orange, Red, and Blue) -was one of many forged paintings sold by the now-defunct Knoedler Gallery in New York. The "[s]cheme" began in the late 1980s. (¶ 29.) That is when Rosales and Jose Diaz found Qian, an unknown but highly talented artist, painting portraits on the street in New York. Rosales and Jose Diaz paid Qian to create paintings that mimic the styles of well-known abstract impressionists. Jose Diaz forged the signatures of the famous artists on Qian's paintings and treated the canvasses with tea bags and hair dryers to make the paintings appear older. By all accounts, Qian was extraordinarily adept at mimicry. The scheme was quite successful.
In the mid-1990s, Andrade, then an employee of Knoedler, introduced Rosales to Freedman, who was then President of Knoedler. Andrade described Rosales as a "very good friend." (¶ 35.) Knoedler, at Freedman's direction, began to buy paintings-all of which turned out to be counterfeit-from Rosales. Rosales provided false provenance stories for each. Two paintings, for example, were purportedly by Richard Diebenkorn. In early 1994, Diebenkorn's widow and his son-in-law told Freedman that the paintings were forgeries. Freedman and Knoedler continued to market them nonetheless.
Later in 1994, Rosales told Freedman that she had access to a previously undiscovered collection of paintings by Mark Rothko, Jackson Pollock, Willem de Kooning, Robert Motherwell, Clyfford Still, and Barnett Newman. The paintings, according to Rosales, were acquired in the mid-twentieth century-Rosales wavered on the precise dates-by an anonymous collector (Mr. X) who lived in Switzerland and Mexico and whom Rosales had met as a child. Rosales had no corroborating documents to support the provenance of the collection. Instead she explained that Mr. X paid in cash and that Mr. X Jr. likely destroyed all written correspondence between Mr. X and the artists. Throughout the rest of the 1990s, Knoedler and Freedman bought at least 25 paintings from Rosales.
By 2000 or so, Freedman grew suspicious. "Apparently recognizing it would have been highly unlikely, if not physically impossible, for Mr. X to have purchased the works directly from each of the artists, " Freedman told Rosales that she "surmised' that Mr. X instead had acquired the works through an intermediary, Alfonso Ossorio (an artist and collector)." (¶ 48.) Rosales later told Freedman that "Mr. X, Jr. had confirmed Freedman's conjecture." ( Id. ) Knoedler nonetheless retained experts to test its veracity. The experts "found no evidence linking Ossorio to Mr. X, to the Rosales collection, or to any of the works in it." (¶ 49.) This did not stop Freedman and Knoedler from using the purported Ossorio connection in their marketing materials for the Rosales collection.
In 2001, Freedman and Knoedler used the Ossorio story to sell a fake Jackson Pollock to Jack Levy, a Wall Street executive. But on October 9, 2003, the International Foundation for Art Research ("IFAR") sent Knoedler a report outlining a number of "very convincing... negatives" concerning the provenance of the purported Pollock. (¶ 58.) IFAR concluded that it was "inconceivable that the Pollock had passed through Ossorio's hands but had never been added to the Pollock catalogue raisonne. " ( Id. ) Because the contract between Knoedler and Levy required that Knoedler repurchase the painting if it could not be authenticated, Knoedler was forced to repurchase the suspect Pollock. Despite its "inconceivable" provenance, Knoedler later resold the same painting to David Mirvish, a Canadian gallerist. ( Id. )
Once the Ossorio story had been discredited, Knoedler and Freedman went back to the drawing board. Andrade had been a close friend of the late David Herbert, a New York art dealer, and had served as the executor of Herbert's estate. Andrade, in a meeting with Freedman and other Knoedler employees, claimed that "he had introduced Rosales to Herbert before Herbert's death in 1995." (¶ 66.) By 2004, Knoedler was informing customers that Herbert, not Ossorio, had acted as the intermediary between the artists in the Rosales collection and Mr. X. Eventually, in other litigation related to the Knoedler Gallery, Andrade admitted that he had no documents linking Herbert to Mr. X and that he had never met anyone who fit the description of Mr. X. In 2007, the Dedalus Foundation ("Dedalus"), an art group, examined seven Motherwells from the Rosales collection. Freedman told Rosales that Dedalus concluded that all seven Motherwells were "false, illegal, or part of a dishonest scheme." (¶ 84.) Freedman demanded that Rosales provide a "bona fide defense" to these allegations. ( Id. ) Rosales confirmed that she was confident in the provenance of the paintings and that Mr. X Jr. had confirmed that Herbert had served as the intermediary for Mr. X. But Rosales refused to sign an updated authenticity statement and refused to ask Mr. X Jr. for any further evidence of the paintings' provenance because she feared that this "might raise his hackles" and she "did not want to jeopardize the relationship by pressuring him." (¶ 85.) Although Freedman, Knoedler, Rosales, and Andrade all knew about the Dedalus investigation as early as 2008, Dedalus did not release its findings to the public until 2011. Knoedler continued to market the Rosales collection in the interim.
In March 2008, Rosales consigned Untitled (Orange, Red, and Blue) ("the Painting") to Knoedler. Freedman noted that "although the Painting came from Mr. X's collection, it was owned by Rosales herself." (¶ 89.) In a "departure from its previous practices, " Knoedler decided to sell the Painting anonymously. It marketed the Painting through Wick, who offered it to Eykyn, a New York - and London-based art gallery, which contacted its client, Fertitta. On April 7, 2008, Wick sent Eykyn an email saying that the Painting was "acquired through David Herbert, New York, either 1959 or 1960 for Private Collection Switzerland [ sic ]" and that it passed to the current owner "by descent." (¶ 94.) Wick wrote:
The work has been viewed by the catalogue raisonne team [at the National Gallery of Art] and it is being considered for inclusion in the catalogue.... I confirm that this work has been submitted to the team, all is perfectly fine, otherwise I would not want to be involved with it. For this I stand with my name as a Rothko scholar. Besides this, the work was submitted to Christopher Rothko [Mark's son], who as we all are, was enthusiastic about it and the pristine wonderfully fresh condition.
( Id. (alterations omitted).)
After some haggling among Eykyn, Wick, and Fertitta, Wick told Eykyn that the undisclosed seller would accept no less than $7.2 million for the Painting. Eykyn accepted the offer on Fertitta's behalf. Fertitta bought the painting through Gurr Johns, another gallery, for tax purposes. Kraft sold the painting on behalf of the "undisclosed seller." Knoedler's records indicate that "Knoedler was selling the Painting on consignment for Rosales, who was to receive $4.55 million of the sales proceeds." (¶ 110.) Wick received $150, 000 from Fertitta and $300, 000 from Knoedler. (Fertitta was not told about the $300, 000 commission.) The bill of sale contract, signed by Kraft and Gurr Johns, provided that Kraft must disclose the identity of the seller in the event of a bona fide challenge to the "attribution, provenance, and description" of the Painting. (¶ 155.) It also provided that Kraft warranted the authenticity of the Painting and agreed to indemnify Gurr Johns for losses stemming from false provenance.
By 2009, the United States Attorney for the Southern District of New York was investigating Knoedler and the sale of works from the Rosales collection. After receiving subpoenas and learning of Freedman's suspected involvement in fraudulent sales, Hammer, Freedman's sole supervisor at Knoedler, immediately fired Freedman. Deprived of the revenue from the Rosales collection, Knoedler started rapidly losing money and abruptly closed its doors in 2011.
Fertitta sold the Painting to an undisclosed buyer in March 2011. Shortly thereafter, an article in The Art Newspaper revealed that the Painting was most likely a forgery. When Fertitta read the article, he agreed to repurchase the painting from the unknown buyer for $8.5 million. He promptly contacted Kraft and demanded that he reveal the identity of his client. Kraft has so far refused to do so. Gurr Johns assigned its claims to Fertitta, who brought this lawsuit on April 1, 2014.
Andrade, Kraft, and Wick have moved under Rule 12(b)(6) to dismiss the Amended Complaint. Andrade argues that the Amended Complaint fails adequately to plead causes of action for RICO, RICO conspiracy, aiding and abetting fraud, and conspiracy to commit fraud, because the Amended Complaint fails plausibly to allege (1) that he was aware of and involved in the fraudulent scheme and (2) that his conduct satisfied the interstate mailing and wiring requirements of the RICO cause of action. Kraft argues that the Amended Complaint fails because (1) the breach of warranty claim is untimely; (2) Plaintiffs have not shown damages sufficient to state a breach of contract claim; (3) the rescission claim is procedurally incompatible with the other claims; (4) the fraud and fraudulent concealment claims are inadequately pleaded; and (5) the indemnification claim fails because the indemnitee did not suffer losses. Wick joins Kraft's argument on the breach of warranty claim, argues that he was not a party to the warranty and indemnification agreements, and joins Kraft's argument on the rescission claim.
A. Legal Standard
To survive a motion to dismiss under Federal Rule 12(b)(6), a complaint "must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The standard of "facial plausibility" is met when "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. Plausibility is distinct from probability, and "a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of the facts alleged is improbable, and that a recovery is very remote and unlikely." Nielsen v. Rabin, 746 F.3d 58, 62 (2d Cir. 2014) (quoting Twombly, 550 U.S. at 556) (internal quotation marks omitted). At the same time, a court is "not bound to accept as true a legal conclusion couched as a factual allegation." Twombly, 550 U.S. at 555 (internal quotation mark omitted). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678.
On a motion to dismiss, a court may properly consider documents attached to the complaint or incorporated in it by reference. Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002) (quoting Int'l Audiotext Network, Inc. v. Am. Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995)). The court may also rely ...