Lessons Learned From 2014 - Six Steps Collectors Should Consider Before Buying Fine Art
Last year, New York courts ruled for art dealers in two significant cases, dismissing suits by buyers claiming the dealers had defrauded them. The courts said the collectors should not have relied on the dealers' representations; instead, they should have verified what they were told. These cases remind us that the age-old rule of caveat emptor is alive and kicking, and that collectors need to conduct due diligence before any art purchase. Here's a summary of the cases and a list of steps every fine art purchaser should consider before closing a significant deal.
The Cases
In ACA Galleries, Inc. v. Kinney, a federal appeals court in New York held that a buyer's failure to conduct its own due diligence prior to purchasing a Milton Avery painting precluded it from recovering damages from the seller when the work turned out to be a fake. According to the court, the buyer could not rescind the sale or sue the seller for fraud because the buyer failed to have the work inspected for authenticity by the Milton and Sally Avery Arts Foundation prior to the sale.
In MAFG Art Fund LLC v. Gagosian, companies owned by Ronald Perelman alleged that Larry Gagosian and his gallery defrauded them by misrepresenting the value of certain artworks and claiming that the values were supported by market data, when they were not. The trial court denied the Gagosian defendants' motion to dismiss the fraud claim. The trial court held that the plaintiffs' allegations that defendants had superior and unique knowledge of the art market precluded a finding that plaintiffs' alleged reliance on defendants' representations was per se unreasonable. The Gagosian defendants appealed, and the appellate court reversed the trial court's decision, holding that: "As a matter of law, these sophisticated plaintiffs cannot demonstrate reasonable reliance because they conducted no due diligence; for example, they did not ask defendants, 'Show us your market data.'" As to the dealers' alleged misrepresentations concerning the value of the artwork, the court held that such statements were non-actionable opinion.
The Take Away
Buyers should...
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